With on-demand or daily pay solutions going more mainstream, more employers are assessing the different options available.
When organizations first went live with HCM platforms a decade ago, one immediate benefit was that HCM tools provide a fast line of sight into the downstream impact of employee behaviors that affect top and bottom-line performance – e.g., healthcare costs, workforce productivity and employee satisfaction and retention.
While employers are increasingly leveraging HR technology to drive further efficiencies, cost savings and risk reduction, many still aren’t meeting the higher expectations among employees to receive a consumer grade experience. In this digital age where information, goods and services are accessible from mobile devices and transactions are seamless, people expect their same level of ease and convenience from their employers so they can help alleviate some of the pressures placed on them.
Right now, employees are just trying to stay afloat, make sound financial decisions, and care for themselves and their families. That’s why it’s critical for employers to ensure quick and stress-free methods of payment for those employees, on their preferred channel.
So what choices are available?
Let’s look at the rise of daily pay solutions, also referred to as on-demand pay or earned wage access. This zero- cost benefit gives employers the wherewithal to change how and when their entire workforce can get paid, and gives employees the freedom to leverage what they’ve already earned.
The concept of allowing workers access to their earned pay when they choose to has passed the early adoption phase and is fast becoming a generally accepted practice in the employer community.
The reasons for the explosion in the acceptance of daily pay solutions are seen in these top results:
- Better hiring and retention. Employers that have adopted on-demand pay, for example, report an average turnover reduction of 50%, which can greatly reduce hiring costs. The applicant pool doubles, they report, helping them fill open positions in half the time.
- Higher engagement. 56% of employees in a DailyPay survey said they are inclined to pick up more shifts or work longer hours, as they are eager to access their pay on-demand.
- More cost savings. The same survey revealed that using on-demand pay instead of payday loans or forms of credit saves employees, on average, $1,205 per year on interest and fees charged on money needed between paydays.
With on-demand or daily pay solutions going more mainstream, more employers are assessing the different options available. Employers can integrate this benefit with HR and payroll systems to transform and enhance the total rewards package for employees.
In order to avoid potential increased costs and risk exposure, employers should consider four important factors:
- Selecting providers. Providers should be transparent in not having employers fund the on-demand access or adjust existing pay cycles in any way, and is pay-system agnostic, meaning there is flexibility in implementing a variety of payroll applications.
- Avoiding loans. While payday loan operators require access to employee bank accounts for employees to be able to draw on amounts, the amounts made available to employees through the top on-demand providers are not loans, since what is available has already been earned, so employees can use the system without the concern of random bank account debiting.
- Configuring delivery. The use of particular payroll cards can add an additional layer of burden on employers and limit the ability of employees to choose the delivery option with no penalty. Instead, employees should be able to simply change their direct deposit designation, where the on-demand pay provider passes the amount owed to the employee’s designated bank account(s) of choice.
- Identifying deductions. Some data interchange is necessary with time and attendance systems, thus making income algorithms a key part of performing quality assurance and preventing costly errors in payroll. Such algorithms can be applied to identify deductions so up to 100% of the earned amounts can be made available to employees.
As on-demand pay continues to evolve into the way everyone gets paid,, employers are migrating because they have found it helps solve the high turnover, recruitment, and employee engagement dilemma facing modern employers. As the workforce and technology continue to evolve rapidly, employers must keep pace too or run the risk of becoming laggards in their industry. With the right strategic considerations and a best-in-class on-demand pay partnership, HR will be well-positioned to meet (or exceed) employee expectations and help transform how their organizations thrive.
Wilson has more than 35 years of finance and payroll operations management and currently leads service delivery for Alight's cloud human capital management and financial solutions business. Wilson is responsible for providing leadership and strategic direction for Workday and SAP customers, which includes a full range of service.
