Bolstered by new tech, is on-demand pay now a ‘table stakes’ benefit?

Can organisations gain a competitive advantage over the competition by offering employees with on-demand pay benefits?
By: | January 22, 2024

With persistent economic uncertainty, employees are expected to face ongoing challenges in managing cash flow between pay checks. To support the financial wellness of their workforce, employers are increasingly turning to earned wage access tools—also known as on-demand pay—that allow employees to claim their income before payday.

This benefit is changing with the times, bolstered by new tech and employee expectations. As these programmes become more convenient and accessible, more employers are considering on-demand pay. A recent ADP survey of 600 businesses illustrates that 82% of leaders said they were interested in adopting it.

The demand for on-demand pay

In a recent report from on-demand pay platform Clair, there has been a 24% lift in average spending per person in the U.S. over the past year. Given the increased demand for cash, 83% of workers Clair surveyed want more frequent payment schedules, such as daily or at least weekly disbursements.

Earned wage access (EWA) relies on the employer’s payroll systems to track and calculate income. Employees can then request an advance on their earnings—often via an app—and the approved amount is made available, often through an associated card. Some plans also allow funds to be transferred directly to the employee’s bank account.

Joel Krausz, Executive Vice-President of Strategic Operations at human capital software company Empeon, calls earned wage access a financial “lifeline” for workers. He asserts that companies offering such benefits will gain a competitive edge in talent retention. However, he believes adoption is lagging, saying that the “future success and wellbeing of the American workforce” depends on making earned wage access a mainstream financial service.

Deepa Chatterjee, COO of consumer services at Ceridian (soon to be Dayforce), says that earned wage access is a “critical part of employers’ move towards financial wellness benefits.” Her company’s on-demand tool, Dayforce Wallet, can be implemented in a few hours and delivered to its payroll system clients to offer real-time earned wage management.

Ceridian’s data supports Chatterjee’s recommendation that HR leaders cannot ignore earned wage access. A recent study of workers using Dayforce Wallet reveals that on-demand pay is valuable to employees. The majority of respondents placed the offering in the same “essentials” category as traditional benefits such as retirement plans and life insurance.

More than spending money

There is another recent tailwind behind this financial offering, according to Tate Hackert, President and Co-Founder of on-demand pay platform ZayZoon, which servers smaller and mid-market businesses. He says that younger generations, who are accustomed to a variety of payment and purchase methods, bring an instant gratification mindset to the workplace.

“They’re used to having everything on demand, whether it’s food, media or shipping,” says Hackert. “Employees are realising that life doesn’t happen in two-week increments, so why wouldn’t they have access to their pay on demand?”

Even employees who do not want early access to their wages can use ZayZoon’s app to manage their finances—particularly people who work irregular shifts—to view wage accumulation as well as deductions for taxes, benefits and garnishments. “Mobile apps have made earned wage access incredibly accessible,” says Hackert. “[People] can log into their app and see exactly how much they’ve earned but haven’t been paid for.”

On-demand pay from an HR perspective

One of the biggest friction points of implementing earned wage access is the misconception that it is too difficult to roll out, says Hackert. However, EWA providers can integrate with payroll and HR systems to streamline the process of collecting data, transferring funds and automatically deducting dollars from employees’ paychecks—all in real time. “Partnering with a payroll provider allows for a seamless activation and implementation of EWA that is completely hands-off for an employer,” says Hackert.

Today’s best on-demand pay services use technology to make life easier for HR teams. While it might sound like a payroll nightmare, wage deductions are not the employer’s responsibility. The platform’s associated bank manages cash flow, so it does not impact the working capital of the organisation.

There are ways for employers to ease into the offering. Programmes such as Dayforce Wallet, for example, can be offered to specific payroll groups. Also, most on-demand pay technology allows employers to set tolerance levels for the frequency and amount that employees can request. Data from ADP indicates that people typically withdraw between 25% to 75% of available wages in their transactions.

It is important to note that revenue models for these systems vary. When vetting on-demand providers, ask if employees will be charged a fee for any services. It is also valuable to ask about customer service—providers often work with a banking partner, and it is necessary to understand who employees will contact for help, says Chatterjee.

Talent-related benefits of earned wage access

Chatterjee points out that when employees are under financial stress, businesses are challenged to attract and retain talent. She says that employers offering Dayforce Wallet report a 15% reduction in time-to-hire and a 21% reduction in 90-day turnover since the implementation of the tool.

There is evidence that on-demand pay pulls in candidates. Data from ADP indicates that 59% of millennials would prefer an employer that offers earned wage access. Chatterjee calls earned wage access a “low lift” benefit with a “high impact.”

Data from PwC’s 2023 Employee Financial Wellness Survey further indicates that employers who effectively help their workforce manage financial issues have the potential to increase productivity.

The report shows that financially stressed employees are nearly five times as likely to say their money worries created a distraction at work and are twice as likely to look for a new job as those without financial concerns.

There is also evidence that earned wage access particularly drives engagement among hourly workers. Cerdian research found that 56% of Dayforce Wallet users (ages 18-29) said they would be willing to pick up extra shifts if they could get paid for it without waiting for payday.

What’s next in financial wellness

PwC’s data shows that 80% of HR leaders are concerned that wages will not keep up with inflation, making it more difficult to balance employee financial concerns with salary raises. With the cost of living on the rise and growing financial strain in the workforce, Cerdian’s analysis predicts that 2024 will foster a groundswell of creative benefits strategies—such as flexible pay.

According to Jason Lee, founder of on-demand pay provider DailyPay and CEO of worker rewards program Salt Labs, access to off-cycle pay is not enough. He notes that employees need to have the ability to meet immediate financial obligations and also save for the future. “Without both, employees quit, even as we have seen major pay increases in the last two years,” says Lee.

READ MORE: HR 2024: Embracing tech, trust, and diversity for success

While earned wage access programmes facilitate timely bill payments, they fall short of promoting substantial savings. Looking ahead to 2024, Lee anticipates a growing expansion beyond on-demand pay to provide employees with the means to save for the future and fulfill long-term financial goals.

ZayZoon’s Hackert also sees that momentum is building, with some EWA platforms now offering employee rewards, financial education materials, a fee-free ATM network and cash-back awards. He says on-demand pay is “table stakes,” and it is not going away soon.

In fact, innovation and activity have increased in this space. When ZayZoon was founded in 2014, Hackert shared that only a few platforms offered EWA. But he says times have changed: “Now, the stage is packed.”

About the author: Jill Barth is HR Tech Editor of Human Resource Executive, where this article was first published.