On-Demand Pay goes by many names – early wage access, earned wage access, instant pay – though, in essence, it is just a facility for an employee to access the money they’ve earned before their scheduled payday. Thus, it is a regular payroll run, not a loan or advance - but assumes great significance as companies vie against others in the "War for Talent".
Rob Squires, VP Regional Head of Sales, Asia & Japan at global human capital management (HCM) software company Ceridian, contends that call it whatever you will, on demand pay is poised to become a competitive advantage, and soon, a necessity to keep pace with the future of work.
“It is a key asset that resilient, future focused companies will wield to build modern experiences their employees love,” he adds.
In an exclusive interaction with People Matters, Squires explains why on-demand pay – early access to earned wages – will be an essential employee benefit to help attract and retain top talent, common barriers/hesitancies that organisations face in the adoption of on demand pay, and how they can overcome those concerns in these regards.
Here are some excerpts
On-demand pay - why is this innovation emerging?
Today’s fixed pay cycles are based on historical practices and outdated technologies. However, in the current times, pay cycles don’t always line up with expenses. This means that employees faced with a financial emergency between pay periods experience a cash flow crunch, and often turn to high-interest options to get by.
New work structures, the fluidity of today’s workforce, and heightened levels of employee financial stress have sparked the need for companies to re-imagine pay day.
The new economic reality requires that companies be smarter than ever, and the events of the past two years have been a catalyst to not only rethink the constructs on which workplace processes are built, but actively define what the future of work looks like.
According to PwC, 72% of employees whose financial stress increased due to the pandemic suggested they’d be attracted to another company that cares more about their financial well-being. The cost of inaction is significantly more than the cost of action.
Why will on-demand pay be an essential employee benefit to help attract and retain top talent?
In today’s hyper-competitive labour market, employers need to provide best-in-class benefits to win the war for talent and deliver quantifiable value. With job vacancies reaching new levels and a pandemic where many public-facing workers left the workforce in volumes, employers have been forced to adopt creative solutions to retain and recruit employees.
A recent Ceridian survey of workers reveals 81% of workers between the ages 18-44 said they’d take a job with an employer that provides access to earned wages on-demand at no cost to them over an employer that does not.
Furthermore, the majority of workers (78%) agree that access to on-demand pay, provided to them at no cost, would increase their loyalty to an employer. When provided a solution of this kind, the same group believes it would make them feel more valued as an employee (79%).
Early access to one’s hard-earned wages, as part of a broader financial wellness strategy, is an example of both meeting the expectations of the modern workforce while also helping to bridge their critical needs.
In many ways, today’s consumer culture of immediacy and autonomy, and the rise of gig work, are paving the way for flexibility. Beyond Netflix’s on-demand entertainment and Amazon’s same-day delivery, we’ve moved into an era of instant access and availability in almost all facets of life – except how we are paid.
Employees expect their experience at work to be comparable to that of their experience as consumers – personal, tailored to their needs, and synced at every touchpoint. With on demand pay, employers will pave the way to increase engagement, reduce employee turnover, while fostering financial freedom in the process.
How does on-demand pay contribute to employee well-being?
Today, millions of workers rely on high-interest credit card debt or payday loans to cover unexpected life events that occur in between pay cycles. This is a challenge across generations, and the unfortunate reality is many people live paycheck to paycheck, without a rainy-day fund to cover unexpected expenses.
On any given day, Ernst and Young estimates $1 trillion is locked in employer payrolls in the US and 36 other developed countries. What would freeing that capital do for the financial wellness and well-being of the workers who have already earned it?
Everyone’s situation is different – it’s about giving people a flexible option, so they don’t have to resort to high-interest options and, instead, have a convenient way to access the funds that are needed in the short-term.
Future business success requires companies to embrace smarter workplace practices that put employees at the centre of the work experience. At the end of the day, a great employee experience is a win-win – employees are happier and more productive, and this can positively impact an organisation’s bottom line.
What deters organisations from adopting on-demand pay? Is it feasible for all organisations?
A 2019 report on earned wage access from Gartner predicts by 2023, 20% of companies with a majority hourly paid workforce will offer flexible, on-demand pay. There are now dozens of on-demand pay providers and high-profile users such as PayPal and Walmart.
On-demand pay may not be a fit for all companies, such as small ones for which the cost of sourcing and implementing a solution might outweigh the benefits to a limited number of workers. For others, it can serve as a cost-effective recruitment tool that can help retain talent in today’s tight labour market.
The key is communication. Ensuring employees are aware they can access on-demand pay, how to enroll for the programme, and how to get started are essential.
How can organisations overcome those concerns to get started?
It’s important to thoroughly research options and what will best fit with an organisation’s existing processes. On-demand pay done the right way should not require any changes to the company’s payroll processes. An accurate, on-demand payment is far different than an approximation of earnings. Select a provider that can process on-demand pay requests as a regular payroll with the appropriate tax withholding.
Payroll administrators should continue to close-out payroll on the regular weekly, bi-weekly, semi-monthly, or monthly cycle without increasing their workload. This means administrators won’t have to spend time reconciling at the end of the pay period.
What are the key considerations an organisation should keep in mind when evaluating on-demand pay vendors?
There are many choices to be made when selecting an on-demand pay solution. When assessing on-demand pay vendors it’s important to ask:
- What is the cost, especially to employees?
- Is a real payroll run?
- Will there be changes to payroll processes?
- How are calculations done on what workers can access?
- Will it offer additional financial wellness tools?
These questions will help organisations assess the potential costs and benefits of their on-demand pay solution. They take into account the payroll practitioners and the role they play, as well as compliance issues in addition to taking a holistic view of employee financial wellness.
Why will on-demand pay be the next employee benefit companies will need to offer in the post pandemic era?
With today’s modern advances in computing power, cloud computing, and mobile, there is no reason that employees today should not be in control of their earned wages in real-time.
At Ceridian, we believe streaming pay will be the next evolution of payroll. This is where pay will automatically deliver earned wages to workers’ wallets at the end of each workday, eliminating the need to request earnings on-demand.