How On-Demand Pay is Changing the Payroll Landscape
What is on-demand pay and where did it come from?
Until recently, if people needed access to money before payday, they needed to go to salary lenders. While these payday lenders filled short-term cash needs, they created a cycle of debt for users, burdening them with high-interest APRs from 200% to 500%. Fortunately, in the past few years, a new business model for accessing pay has emerged. Instead of individuals scrambling to find sources of cash on their own, employers began to offer a benefit that gives their employees access to their earned pay, often referred to as on-demand pay.
Many of these third-party vendors function like Venmo for employees’ earned wages. The most successful on-demand pay companies don’t require any changes to a company’s payroll procedures and are fully compliant with regulations.
Why is on-demand pay important?
On-demand pay is more than just helping employees in a pinch. It has long-term benefits for both employers and employees. Overall, on-demand pay improves the employee experience and financial well-being, which trickles down into positively influencing business concerns such as retention, turnover, engagement and productivity.
Improved engagement and productivity
Employees who are enrolled in an on-demand pay program can focus more on the task at hand rather than on any financial worries they have because they’re no longer stressed with loan repayments or overdraft charges. While this reaps positive benefits for employees, it can also lead to happier and more engaged customers. Companies that excel at customer experience have 1.5 times as many engaged employees as companies who don’t.
Increased retention and reduced turnover
Employee access to on-demand pay also influences retention and turnover. In fact, on average, companies see a reduction in turnover by up to 72%. Compounded with the challenges of the current hiring market, that’s a sizeable leap forward for your retention strategies. It’s a proven fact — happier and more engaged employees are more likely to stay longer.
Enhanced financial well-being
On-demand pay is proven to improve employee’s financial well-being in the long run. People using on-demand pay don’t need to wait until payday to pay bills. And, they can save an average of over $1,200 per year on late fees, overdraft charges and loans.
How to take the first step.
As one of TEAM Software’s strategic on-demand pay providers, DailyPay keeps additional work from falling to your busy payroll teams. While every business is different, we’ve seen retention benefits as quickly as the 30-, 60- and 90- day marks.
It’s always best to check with your own legal team to ensure providers you’re partnering with are adhering to all necessary wage laws as you explore an on-demand pay strategy. One of the benefits with DailyPay is that we eliminate this concern because of the tax compliant funding model that does not trigger constructive receipt. We ensure data security and compliance with its SOC 2 compliance testing and PCI DSS Level 1 compliance, and we also take on 100% of the financial risk, leaving no worries for you and your team.
Interested in learning more? Reach out to your customer success manager at email@example.com.
Michael Baer is a Special Advisor at DailyPay. Michael has a career covering payroll issues for the past three decades and specializes in communication and compliance; he is an advocate to the payroll community for employees accessing pay when earned. Prior to DailyPay, Michael was managing editor at the Bloomberg subsidiary, Bloomberg Tax, where he was charged with overseeing BNA’s Payroll Library, developing the Payroll Decision Support Network and International Payroll Decision Support Network. All these products are now consolidated into one payroll offering on the Bloomberg Tax platform. Michael is a Certified Payroll Professional.