What Is On-Demand Pay and Why It Is Growing!
There are many new payday services that are being offered by some businesses. Payroll service companies can now provide employers with what is being called "On-Demand Pay."
What is On-Demand Pay?
In today’s world, many people feel they should get what they want and when they want it. More and more payments and financial activities are automated. So, it is no surprise that they may like the idea of getting paid every day and have the money in their checking account immediately. Most are available nearly immediately. Some employers have started to offer this flexible payment concept to employees.
On-demand pay is exactly what it sounds like. Employers allow employees to be paid on demand instead of waiting for the regular pay date every 2 weeks or twice a month. On-demand pay gives employees early access to wages they have already earned.
Depending on what an employer will allow, these new services can allow employees to decide whether they want to get paid for a day just completed or for the days since they were last paid. Essentially, this can provide employees the freedom to decide when they want to get paid and may also help them better manage their cash when unexpected expenses arise.
For the employer, it may cause more paperwork and monitoring, i.e., more cost, so some employers will not want to offer these services. There may also be some legal considerations.
There are also financial experts who believe that a regular paycheck every 2 weeks is actually better as it causes an employee to better plan their spending and plan for paying regular expenses. They believe that employees, who are paid daily or often, tend to not be ready for any unexpected bills and are frequently scrambling for cash when emergencies happen.
Can On-Demand Pay Help Employees?
On-demand pay lets employees get paid faster than traditional payroll systems, for their time worked. The logic is that paying employees sooner relieves financial stress and allows them to make timely payments of bills. This is primarily relevant to people living paycheck to paycheck.
Quick access to your pay, before a standard pay date, can enable employees to manage an unexpected emergency, which may help in those situations.
Can On-Demand Pay Help Employers?
You can argue that the higher expense of offering these types of programs would make it so that no employer would do so. But there are a couple of benefits employers may find valuable:
- The on-demand pay system could be used as a recruiting tool, as immediate pay access is something quite a few employees may like.
- It may also help with employee retention if perceived as a key benefit.
- Employees may feel less stressed as they can get on-demand pay to cover emergency expenses.
Besides higher costs to administer this type of program, employers will be taxed with ensuring their employees are fully informed about the program, and most importantly, how the program works. Employees could misunderstand this type of system.
Finally, if an employee gets used to receiving daily wages, they may find themselves in a financial emergency since they are paid up to date and may not have any cash cushion. In these cases, the employee may still consider taking a short term loan, like a payday loan to help them out of these situations. If they have a flexible pay plan, it may also be easier to ensure they pay back the loan on the due date as they can access cash quickly and not wait for the traditional 2 week period for their next check.
No matter what, both employers and employees should understand all the implications of on-demand pay before using such a system.
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