The Rise of On-Demand Pay: Is Getting Paid Daily the Future?

When life throws unexpected expenses your way, it would be comforting to have access to money you earned before your next pay period. For the two-thirds of Americans currently living paycheck to paycheck, early access to wages could help relieve financial stress. Employees who are worried about their finances are less likely to be productive on the job. This is especially true in places that offer low minimum wages. Companies are also enjoying the benefits by introducing this option. Major players, including Walmart, KFC, Taco Bell, and McDonald's, have placed pay control in the hands of their employees and have seen a rise in employee morale.

How does this service work? At the end of the workday, employees receive a notification on their phones letting them know that they can collect money earned for that day. If they choose to collect the money, a payment is sent directly to a prepaid debit card, known as a pay card, or transferred to their bank account. Employees are responsible for paying any fees for this service, just like at an ATM. Additionally, since there are no taxes taken out with this transaction, employees will see a lower amount in their next paycheck to reflect the tax deduction.

Pulling cash out of wallet

When considering whether to implement on-demand wages for your employees, there are pros and cons to weigh in your decision. The pros include higher employee retention rates, greater productivity, and less-stressed employees. Early access to wages can also mitigate the need to take out high-interest loans.

It gets complicated

One important con to consider is the chance for pay errors, such as paying the employee twice. Another negative is that employees may fail to deduct taxes from on-demand wages from future paychecks. This may cause a red flag with the IRS, with the employer being responsible for the financial consequences. Yet another consideration is who will pay for the service – the employer or the already financially strapped employee. Fees for the employee are generally low and run between $1 and $3 per transaction or a flat monthly fee. In this scenario, there is no cost to the employer.

For employers that want to go forward with offering employees earned wage access, there are companies that can manage this time-consuming payroll process. Employers pay a subscription fee to the payroll processor for this service. Companies that have already outsourced their payroll services can integrate on-demand payment as part of their contract for an additional fee. In addition to outsourcing, companies can research payroll software or online payroll providers to find the best match to meet their needs. In general, employers can expect to pay between $30 and $100 per month in fees for each employee when outsourcing this service.

Being able to ease the financial burden of employees needing access to their earned pay on demand instead of waiting for the more infrequent two-week pay period is a definite benefit in building employee morale, retention, and productivity. Who will pay the transaction fees is a decision based on how much your budget can support.