When is payday? Historically, the answer to this question has been decided by employers. Companies chose a schedule—biweekly, monthly, or a different timeframe—and employees had to adjust to it. If a financial emergency came up between paychecks, well, the employee just had to wait and that wait often comes at a steep price.
Thankfully pay schedules have changed dramatically today, due to the growing popularity of on-demand pay. Employees are increasingly seeking flexible payment options that align with their financial needs. In the digital era, where many of us seek more control over our lives, on-demand pay allows workers to essentially pick their own payday and tap into their earned wages when they need them, regardless of the company-set schedule. In fact, more and more companies are making on-demand pay easy to access through employer-sponsored earned wage access (EWA) programs.
On-demand pay and earned wage access are quickly becoming essential tools for both employers and employees. But are these concepts different, or are they just different names for the same thing? Here’s a closer look at on-demand pay and how it’s affecting the way workers manage their finances.
What is on-demand pay?
On-demand pay is a system that allows employees to access their earned wages at any time, rather than waiting for the traditional payday. Think of it as a revolutionary approach to compensation, built on the idea that employees should have choices when it comes to managing their own financial flexibility. With on-demand pay, workers can better cover emergency expenses or simply manage cash flow between paychecks.
On-demand pay vs. earned wage access
On-demand pay and earned wage access (EWA) are closely related concepts but do technically have a few differences. On-demand pay refers to any service that allows employees to access a portion of their earned wages immediately or whenever they need it, before the scheduled payday. EWA, on the other hand, generally refers to the framework or program that enables on-demand pay.
Typically, EWA programs work by integrating with an employer’s payroll system and letting employees access their earnings as they accrue through an app or web platform. This allows workers to directly transfer the portion of their earned wages to a bank account or prepaid card whenever they choose and immediately deal with whatever financial need they may be facing.
Because the concepts are so similar, the terms on-demand pay and EWA are often used interchangeably. After all, both terms refer to services that:
- Provide early access to earned wages
- Offer financial flexibility to employees
- Help reduce financial stress among workers
- Improve employee satisfaction and retention
The primary distinction lies in the terminology used, but the core principle remains the same: giving employees access to their earned wages when they need them.
On-demand pay vs. daily ACH
Another well-known way of giving employees more flexibility is through daily ACH (automated clearing house). This payment method delivers wages straight to employees on a daily basis via electronic bank transfers. Once that money is in their accounts, workers have the freedom to access it whenever they need it, instead of waiting on weekly or biweekly schedules. In simple terms, daily ACH lets employees enjoy daily pay. This can help them handle unexpected expenses or financial emergencies flexibly, as they come up.
However, setting up and administrating a daily ACH can have some drawbacks, since running payroll so frequently often requires more administrative time and labor. In comparison, on-demand pay through earned wage access programs offers a simpler solution with greater benefits for both employers and employees. Here’s how:
- Flexibility: On-demand payroll via EWA offers even greater flexibility than daily ACH, allowing employees to access their wages at any time, not just once per day.
- Cost-effectiveness: Implementing EWA can be more cost-effective than setting up daily ACH transfers, which may incur additional bank fees.
- Reduced administrative burden: Unlike daily ACH, which requires daily processing, EWA systems often operate automatically, reducing the workload on your payroll team.
- Improved cash flow management: EWA allows for better control over cash flow compared to daily ACH, as funds are only transferred when requested by employees.
- Enhanced employee experience: EWA generally provides a more user-friendly experience through dedicated apps or platforms, offering features beyond simple fund transfers.
By offering on-demand pay, employers can not only match but potentially surpass the appeal of companies using daily ACH, providing a more flexible and employee-centric payment solution that alleviates additional risk to payroll teams.
Perks of on-demand pay for employers and employees
On-demand pay and earned wage access are most commonly thought of as employee benefits offered to make life easier for workers. But employers too have much to gain by offering EWA programs. Giving workers access to on-demand pay can bring:
- Increased financial wellness for employees: With access to instant pay whenever needed, employees can feel more secure. A single unexpected expense no longer has to derail their lives when they can request pay on demand in the case of an emergency.
- Reduced absenteeism and improved productivity: No longer do employees have to spend their time and energy in a scramble to borrow money when an unanticipated financial need comes up. Workers can avoid missing work due to such emergencies and stay better focused.
- Enhanced employer-employee relationships: As an employer, offering early pay demonstrates that you value your team members' financial flexibility. Employees won’t need to directly ask for a payroll advance if an emergency strikes. Instead, they can access their funds easily and privately with dignity.
- Competitive advantage in attracting and retaining talent: For many employees, EWA is a must-have. The option of a paycheck advance when needed can be a powerful benefit that helps attract and retain top talent.
- Reduced reliance on high-interest payday loans: With on-demand payroll options, employees no longer need to resort to predatory, high-interest payday loans that can start a never-ending cycle of debt.
Implementing on-demand pay in your organization
If you're considering adopting on-demand pay for your business, here are some steps to get started:
- Research earned wage access providers
- Assess your current payroll system and its compatibility
- Communicate the benefits to your employees
- Implement a pilot program
- Gather feedback and make necessary adjustments
The future of on-demand pay
As more businesses recognize the advantages of on-demand pay, we can expect to see wider adoption of this flexible payment model. It's not just a trend, but a shift in how we think about compensating employees in the modern workplace.
Whether you call it on-demand pay or earned wage access, the concept remains the same: providing employees with flexible access to their earned wages. As workplaces evolve, on-demand payroll is poised to become an essential part of the modern compensation package. By embracing this innovative approach, businesses can improve employee satisfaction, reduce financial stress, and stay competitive in the dynamic job market.
If you’re searching for a simple and effective EWA solution for your employees, take a look at what Tapcheck has to offer. Our EWA solution is completely free for employers and comes headache-free, with fast, easy integrations to payroll and timekeeping systems. For employees, Tapcheck offers low, transparent fees for on-demand pay coupled with free financial education tools to empower better financial decisions. Find out risk free what this employee benefit can do for your company by requesting a demo.
