Living from paycheck to paycheck is difficult, to say the least. The cost of having to borrow money from banks or friends is high, and the financial obligations, such as mortgage and bills, do not make it any easier. What if there was a tool to use your earned wages before money is paid out officially? Hold on: there’s a way! On-demand pay is an exciting trend that helps workers save money on loans and manage their finances more efficiently. Let’s see how on-demand pay can simplify the life of employees. 

Defining On-Demand Pay 

The concept is not that new, and its other names (on-demand wages or earned wages access) have been in the public eye for some time already. Regardless of how it is called, on-demand pay is when employees can access their yet unpaid wages after their shift ends. On-demand pay doesn’t replace traditional paydays – they are a regulatory necessity and a fundamental milestone in payroll bookkeeping. Instead, it helps companies make their employees’ salaries more accessible, thus driving financial literacy and worker satisfaction in the workplace. The part of salary that the employee has access to and uses before the designated payday is not reimbursed, so the resulting pay at the end of a pay cycle is going to be less. 

NB: Early Wages Access and Earned Wages Access (both shortened to EWA) are often confused, though there is a subtle difference in the two concepts. The former is a corporate practice when the employer itself offers a part of wages to be paid out prior to a scheduled payday. The latter is a software (in the form of a mobile app or an online platform) that works directly with the company. 

Numbers Behind On-Demand Pay 

Financial strain is a common ground for stress among workers. In fact, one of the reasons people switch jobs is to find a peace of mind over being able to meet all their financial responsibilities. On-demand pay helps find comfort and effectively meet payment deadlines. 

• Federal Reserve: 40% of Americans would struggle to cover an unexpected bill. The survey shows that 55% of respondents would have to borrow money from friends or banks to manage the expense. Offering early access to yet unpaid salaries significantly improves the financial state of a worker. 

On-demand pay is a powerful leverage to combat employee turnover. It can be instrumental in building a successful HR-brand in the competing talent market. 

• DailyPay: The turnover rate decreased by 50% thanks to early wages access. DailyPay is one of the pioneers in the industry, and today it boasts Target, Kroger and HIlton among its high-profile clients. 
• CGK: 61% of Gen Zers want their employer to offer the option of on-demand pay. The request is in line with how quick and accessible entertainment and products are to this generation. Employers that want to win in the talent hunting game will need to incorporate the option. 

A stressed out worker spends their energy on worrying and looking backwards on their personal financial troubles. By helping employees out with a more accessible and sustainable financial wellbeing, employers can build stronger and more focused teams.

• Consumer Financial Protection Bureau: Payday loan fees cost Americans over $9 billion annually, highlighting the significant financial burden faced by many 
• Tapcheck: 50% of Tapcheck users were able to avoid new debt and 65% experienced a reduction in overall financial stress thanks to its earned wage access services. 

In conclusion, the data clearly demonstrates that on-demand pay is more than a convenient perk. It is an increasingly critical tool for addressing the financial stress faced by millions of workers. The experience of American employees cited above can be safely extrapolated onto European, Asian and other workers that are stretched with their financial obligations. As the talent market continues to evolve, offering early wage access is no longer just a competitive advantage; it’s becoming a necessity for attracting and retaining top talent while fostering a healthier, more focused workplace environment.

Mechanics of On-Demand Pay Software 

The early wages access provider needs to be integrated into the corporate HR technology, so the provider sees the relevant information (hours worked, commissions, benefits applied, etc). Where does money come from in early access software? The provider acts as an intermediary, and it uses its own money when an employee requests an early payout. The provider is reimbursed when a real payroll cycle ends with a payday. On-demand pay providers earn money from fees and commissions they charge the clients. Employees are not charged anything, although sometimes there is a small fee at withdrawal.   

There are limits on how much wages an employee can use prior to the scheduled payday. 

For example, some providers may restrict available funds to 50% of an employee’s total paycheck. An employee who earns $1,000 every two weeks would only be able to access $500 between paydays. 

At the end of the day, employees use their own money they otherwise would have only got access to in a week or two. There is no loan happening, no interest rates and no extra burden for the employer. The outcome is a more financially stable worker who stresses less and remains more focused on their work. 

History of On-Demand Pay 

It is safe to assume that the concept of on-demand pay comes from the United States of America where the gig-economy giants such as Lyft and Uber and Doordash sparked the idea that a worker should be able to access their wages after they earn them, not necessarily on the actual payday. Therefore, the section talks primarily about the American history of earned wages access. 

From ealy paper checks still in use today to direct bank deposits, workers have only had access to money they have earned in 1 week or 2 weeks or even once a month, depending on the pay schedule adopted in the industry and the business. In the early 1990s payday lenders (financial organizations that provide short-term loans with high interest rates) recognized the potential and rushed in to offer their services. In need of quick cash, people flooded in, ready to pay a little bit of interest for not missing out on another obligation. 

But what was the real cost? According to Kaitlyn Hoevelmann, an average interest rate was 391%, given the borrower is able to pay back $400 loaned in two weeks – the overpay is $60. For comparison, a credit card would charge somewhere around 12-30% interest rate. The trick with payday loans was how easily available their funds were compared to banks. Those who took out these loans were employees barely making ends meet, with little to no credit score to hope for a proper bank loan. The rationale behind these monstrous payday loan rates was to make up for potentially unpaid debt. 

But fintech has brought a new perspective. With cloud-based computing that made operations faster and more efficient and much paperwork simply redundant, the payroll management jumped at the opportunity to automate processes – and on-demand pay saw its rise. The demand was fueled by Millenials and Gen Z who are, sadly, dependent on instant gratification. 

Today the market sector for on-demand payment software features some big names. The top 3 providers are DailyPay, Even and PayActiv. While most early wages access software solutions were developed to address the struggles of hourly employees (those most commonly living paycheck to paycheck), the reality shows that some leading companies transfer – or at least give a chance to most of their staff: franchise employees of McDonald’s (FlexWage), Target (DailyPay), front-line workers of Hilton (DailyPay), Lowe’s (PayActiv) and more. 

Financial and tax authorities believe in the potential of the tool. The Financial Conduct Authority (FCA) in one of its reports focusing on ‘Buy Now Pay Later’ and ‘Earned Wage Access’ positively identifies the benefits of the instrument: “Depending on how they are used, they can be a low-cost, easy-to-access alternative for people who may not be able to access mainstream credit. There is no need to actively repay anything at the end of the month as withdrawals are automatically deducted as part of the payroll process.” However, the legislative background, laws and acts, have not yet been universally applied. Even in the US, very few states have explicit regulations for EWA: California, New York, New Jersey and Washington. 

Pitfalls of On-demand Pay 

In fact, FCA shared its view on EWA outlining the key aspects that need to be taken into consideration when launching the EWA benefit in a company. 

1. Long-term work vs. Destination. One popular argument in favor of implementing EWA is that it fosters financial stability of employees. But stability is a result of consistent work, healthier habits and control. Having wages at one’s fingertips doesn’t automatically mean a reimagined approach to personal finances. Employers that hope to change their staff’s financial position should adopt a full-fledged, holistic view that doesn’t end with an EWA provider. 
2. Focus On The Goal. FCA expressed an open disapproval of some providers that attempted to make companies pay for other services that have nothing to do with earned wage access. The rationale was to provide the service for free and make money elsewhere in the company. This behavior removes the focus and the benefit from the staff to something else, ultimately walking away from the original purpose. In a similar vein, FCA bewares to carefully check the financial model of the EWA provider: if their revenue comes from wage requests alone, they may be increasing the fee later making an originally life-saving solution into an expensive commodity. 
3. EWA Is Only A Tool. EWA usage patterns among the staff can tell a lot. While the key is to maintain confidentiality, the employer should be aware of how exactly EWA is used. If used uncontrollably, no EWA provider will ever help the team escape falling short at the end of the month. Employers should treat EWA as a tool that gives insights into how employees manage their resources – and provide help where necessary to serve the greater purpose of financial stability. 

Small business and EWA

On-demand pay is an employee benefit that matters a lot – and it doesn’t cost little either. The challenge is that implementing EWA means adding yet another strain on a small business. For them, payroll is a sensitive process that needs close monitoring and delicate management. Any pay cycle is essentially a cash drain for them. 

Another challenge is related to laws. Because of lack of proper regulations and a highly specific context of the American payroll industry, the solution may not be available to any business anywhere. Small businesses may not even have a dedicated HR/payroll tech to wed EWA with. How to not miss out on a quality benefit for the team? 

The answer is easy: EasyStaff Payroll. 

EasyStaff Payroll: Pay When Necessary 

The gig-economy transforms the way teams are built and managed. International remote teams are no longer a miracle. The contractor payment platform EasyStaff Payroll understands that and its approach to payment management allows for secure payments on demand and on a schedule to meet any kind of business operations. 

• Compliant. EasyStaff Payroll is a Lithuanian startup, hence a European company. It signs a B2B contract with its client and acts as a business partner, mitigating payroll and tax risks by distributing payments through its network of banks and financial partners. Closing documents are available for every transaction to help the business keep operations transparent. 
• Fast. It takes no more than 24 hours to join the platform. Filling out the payment request is no more than 10 minutes. Payment operations can be repeated as many times as necessary. EasyStaff Payroll values time more than anything else, and the platform is designed to make payroll operations as swift and seamless, complemented with human-powered customer support. 
• Affordable. Commissions are flexible, and with a bulk payment once a month it can be as low as 4%. A flat fee of $39 is also available. The minimum payment is $10. Any task can be paid for anywhere with EasyStaff Payroll. 

Conclusion 

• On-demand pay is a promising trend that is actively adopted by companies in order to decrease staff turnover rates and build a more sustainable workplace for their teams. 
• On-demand pay is an effective alternative to payday loans that push workers into vicious circles of debt. 
• The key is to understand that an EWA is not the goal or the end result. Instead, it is a valuable tool that helps businesses take care of their staff and gain important insights into their financial wellbeing. 
• This employee benefit is a commodity for large established brand and a luxury for small businesses. The contractor payment platform EasyStaff Payroll understands that and provides a convenient dashboard to run payments when necessary. The low commission starting at 7% and the minimum payment of $10 makes it an invaluable and 100% compliant payment tool for evolving teams.