Between the rising cost of living expenses, healthcare costs and other emergencies, many Americans are running a race with finances that just can’t be won. We need money, and more of it – yesterday! Three in four people reported a personal experience with financial insecurity (Commonwealth). More than 125 million U.S. adults live paycheck to paycheck (LendingClub), and surprisingly, many of those consumers made more than $100K per year. Additionally, 40% of Americans could not handle an unexpected expense of more than $400 without credit (Federal Reserve).
For cash-strapped Americans, the two-week standard payday cycle just isn’t working anymore, which is why many employers are considering giving workers access to earned wages through a new flexible payment option called on-demand pay.
What is On-Demand Pay
On-demand pay is a method of paying employees their wages as they earn them. This method deviates from a traditional weekly or monthly payday cycle. When employees have access to some or all of their earned wages, they can pay bills on time and better manage expenses without the use of expensive financial products including payday loans, pawn shop loans, check cashing services or money orders.
How Does On-Demand Pay Work?
Most employers do not manually calculate payroll in real time, which is why on-demand pay is formally executed through an HCM provider or payroll administrator. Using advanced cloud-based technology, on-demand pay providers can calculate how much an employee is owed in real time every day, after tax of course, and then offer some or all of that amount to the employee prior to payday. Some providers charge a per-pay-period fee but it is often very low as they are simply providing earned wages with low risk involved. Employees who want to avoid banks altogether can also opt to have their wages dispersed on a payment card.
How Does On-Demand Pay Benefit Employers
Employees aren’t the only ones who benefit from on-demand pay. Employers also stand to gain from offering this payment option to their employees.
Financial Wellness = Productivity
More than 77% of employers reported plans to offer support for employees’ major financial decisions, in a recent Fidelity survey. That’s because employers have known for decades that if you support employees through major life issues, you will create a healthy, productive workforce. When workers do not have to stress about finances, they can perform better at work. On-demand pay gives workers peace of mind over their finances which positively impacts the business.
Recruitment and Retention
The novelty of on-demand pay also provides a competitive advantage in the war on talent. Workers who were surveyed about whether they would rather have access to on-demand pay or get paid more preferred on-demand pay.
Any fees associated with on-demand pay are insignificant in comparison to fees associated with turnover. A McDonald’s restaurant owner who offers an on-demand pay service to employees was able to improve turnover by 10 percentage points (USA Today).
How Paycor Can Help
Paycor builds HR software for leaders. Instead of paying extra for technology that meets your unique needs, we’ve built OnDemand Pay directly into our payroll solution. It is available for Paycor customers at zero cost to employers.
Paycor’s OnDemand Pay was built for HR leaders in the restaurant, long-term care and manufacturing industries looking to decrease turnover and offer employees more flexible payment options. With OnDemand Pay, employees can access their wages when they want, budget for expenses and receive free access to financial education.