Pay On-Demand: A recent advancement in Payroll

With remote work taking the high road and employees getting to choose their mode of work, flexibility has become the new normal. When industries everywhere are brainstorming ways to provide immediate access to everything, adaptability has risen to be a commodity, nudging companies to reconsider their traditional payroll methods. Companies that offer on demand pay are gaining a competitive advantage in the job market, especially among younger generations.

Keeping up with the trend of adaptability, companies have grown to consider incorporating a flexible pay option for their workforce, hence bringing the “Earned Wage Access” EWA or commonly known as Pay On-Demand to the forefront. More companies are choosing to offer on demand pay as a way to attract and retain talent.

Let’s explore the what and how of Pay On-Demand and try to understand its intricacies.

What is Pay On-Demand?

While traditional payroll involves employees waiting for their bi-weekly or monthly pay-outs with wages earned during the previous payroll period, Pay On-Demand gives workers access to some or all of their remuneration as it is earned. The difference between Pay On-Demand, salary advances, and earned wage access lies in flexibility, repayment, and timing: Pay On-Demand and Earned Wage Access provide early access to wages already earned, without requiring repayment or relying on future earnings, while salary advances are loans against future income and must be repaid.

Pay On-Demand, also known as Earned Wage Access, Instant Pay, or Daily Pay, enables employees to access their earned income before the actual payday. This means employees do not have to wait for the traditional pay cycle or paycheck, and can access their wages as soon as they are earned, rather than waiting for a fixed pay cycle. On demand pay work typically involves a provider platform that allows employees to request early access to their pay, which is then funded by the provider and reimbursed by the employer on payday. For example, most systems allow employees to access up to 50% of their earned wages to promote responsible financial behavior. On-Demand Pay can be implemented for all employee types without changing the employer's pay cycle. Importantly, On-Demand Pay does not affect the hourly rate or overtime calculations, but provides more flexibility for employees. Unlike most financial products, On-Demand Pay is accessible, low-cost, and designed to help employees manage cash flow without incurring debt. This widens their control over their earned income, as they get to decide when to access it before the next payday.

How On-Demand Pay works

On-Demand Pay, recognised increasingly as Earned Wage Access, represents one of the most significant paradigm shifts in contemporary employment compensation structures, fundamentally redefining how employees engage with their earned remuneration by providing instantaneous access to wages as they accrue, rather than adhering to traditional payroll cycle constraints. This innovative compensation access methodology empowers workers to withdraw funds from their accumulated earnings at any juncture during the current payroll period, delivering unprecedented financial autonomy and the strategic flexibility to address unexpected fiscal obligations as they materialise.

The operational framework typically involves sophisticated third-party providers that achieve seamless integration with employers' existing payroll infrastructure. Employees can authenticate into secure platforms or applications, review their available earned compensation, and determine the precise amount they wish to access. Once a withdrawal request is initiated, funds are transferred directly to the employee's designated banking account, frequently within minutes. This instantaneous payment solution effectively eliminates reliance on high-interest lending products, payday advances, or other costly financial instruments, enabling employees to leverage their own earned income to address urgent financial requirements.

For employers, implementing on-demand pay constitutes a strategic competitive advantage in today's challenging labour market. Numerous prominent employers across the United Kingdom, including major retail chains like Tesco and Asda, corporate entities such as Capita, and several NHS trusts, have adopted this benefit to support their workforce's financial well-being. By providing early wage access capabilities, these organisations help mitigate financial anxiety and stress among employees, which research demonstrates can lead to reduced staff turnover, improved shift coverage rates, and enhanced overall productivity metrics. Employees who maintain greater control over their financial resources are demonstrably less likely to experience money-related distractions, resulting in a more focused and engaged workforce.

However, there are critical trade-offs that require careful consideration. Certain providers may impose transaction fees for each withdrawal, which can impact the employee's net compensation. Employers must also manage their cash flow obligations meticulously to ensure that early wage access provisions do not compromise the organisation's financial stability or liquidity position. Despite these considerations, the demonstrated benefits of on-demand pay—including reduced absenteeism rates, enhanced financial well-being outcomes, and strengthened employee benefits packages—frequently outweigh the associated costs.

In addition to instantaneous access to earned wages, leading on-demand pay providers offer complementary services including comprehensive financial education programmes, sophisticated budgeting tools, and personalised financial insights. These resources enable employees to make informed decisions regarding their financial management, further reducing dependence on high-cost lending products and late payment penalties.

Implementing on-demand pay proves straightforward when partnering with the appropriate provider. Integration with existing payroll systems ensures that wage advances are accurately tracked, tax obligations and deductions are processed correctly, and the entire process remains compliant with regulatory requirements. This systematic approach allows both employers and employees to realise the benefits of on-demand pay without introducing operational complexity to payroll administration.

Ultimately, on-demand pay is fundamentally reshaping the landscape of employee benefits and payroll management across industries. By offering this service, employers can demonstrate a tangible commitment to their staff's financial health, attract and retain top-tier talent, and foster a more resilient and satisfied workforce. As an increasing number of UK employers embrace this model, on-demand pay is positioned to become a standard feature in modern payroll systems, delivering enhanced financial flexibility and control to workers across all sectors.

Why consider Pay On-Demand?

In yesteryear, a salary advance was provided only on account of a private borrowing agreement between the employer and the employee. Which resulted in checking the employee’s credit and required a repayment with interest. These traditional loans were all based on the money they had not earned, hence putting employees at risk of defaulting on the loan.

With the advent of Pay On-Demand, there have been multiple opportunities for employees and employers alike. Offering On-Demand Pay demonstrates that the company cares about employee happiness and security, which can improve morale and loyalty. Let us take a quick look at the benefits it offers to employees:

• Exercise their right to access earned pay: Early wage access equates to a heightened sense of freedom for employees. Which elevates them to manage their finances more effectively as they can now spend money as per their schedule rather than depending on a schedule fixed by their employer. EWA provides real-time visibility into accrued earnings, aiding budgeting and financial planning, and its effectiveness is enhanced when combined with financial education and budgeting tools.
• Increased financial well-being: With Pay On-Demand becoming a financial guardrail during uncalled expenses, employees are given a more balanced and sound financial status, omitting their need to opt for high-interest loans and money lenders.
• Ensures discretion: Pay On-Demand removes the need for employees to request their manager or Human Resource Administrators for advance pay during times of hardship and instead puts forth a more discrete pathway to acquire funds they are entitled to.
• Wage advance vs. On-Demand Pay: While wage advance typically refers to accessing a portion of future wages, often with fees and based on unearned income, On-Demand Pay (or EWA) allows employees to access wages they have already earned, providing a more sustainable and less risky alternative.

With the benefits overturning the balance towards employees, it is to be noted that employers are benefited to a great extent as well by incorporating Payment On-Demand into their HR and payroll processes. Here are some key benefits that employers reap thanks to EWA:

Maximised productivity and improved retention rate

• Reduce absenteeism and staff turnover: Employers that offer On-Demand Pay can see a reduction in staff turnover after its introduction, and it can help reduce absenteeism by improving employee financial health and reducing stress-related sick days.

Thanks to EWA, employees foster a less distracted and more productive workplace, as their employers provide them financial flexibility. Financial stress which affects employees’ satisfaction levels, leading to absenteeism and lowered productivity is abolished, making Pay On-Demand a recruitment incentive and engagement tool.

Fully automated and increased accuracy

• Cash flow management and payroll team integration: Employers need to manage cash flow carefully, as cash flow management is crucial, especially when implementing On-Demand Pay without third-party funding. The payroll team plays a key role in managing early wage access, ensuring deductions are handled accurately and that the process integrates with existing payroll systems to minimise administrative burden. Additionally, compliance with employment laws and financial regulations is necessary when implementing On-Demand Pay.

Pay On-Demand is a fully automated initiative that needs minimum intervention and dependence from employers, hence increasing accuracy thanks to advanced technology.

Unveiling the flaws

Despite housing a ton of major benefits for employees and employers, Pay On-Demand can invite a few challenges that need to be understood before adopting it.

Accessing earned income whenever you want can be a double-edged sword. Frequent early withdrawals can result in smaller amounts on standard payday, making careful financial management essential. Employees may experience financial mismanagement if they spend their earnings prematurely due to the availability of On-Demand Pay. There is also a risk of employees becoming dependent on EWA for daily expenses, potentially perpetuating a paycheck-to-paycheck lifestyle. Employers need to set limits on withdrawal frequency and amounts to prevent dependency on EWA.

Potential pay errors can arise from the complexity of On-Demand Pay systems, leading to overpayments or miscalculations. On-Demand Pay can also complicate payroll tax calculations and compliance, requiring businesses to have appropriate processes in place. If many employees request their pay immediately, cash flow issues may occur, complicating budgeting for the business. Additionally, transaction fees can impact employees financially.

Hence it is vital to follow a more balanced approach where financial knowledge is promoted by setting a reasonable cap on the frequency of withdrawals. This shall benefit both the companies and the employees.

Make the shift and choose Pay-On Demand

Pay On-Demand, when implemented correctly, can significantly disrupt business and work experiences for the best. However, implementing a pay on demand system can be complex and requires careful planning for compliance with regulations. Each company can set its own process for requesting On-Demand Pay and define limits on the amount that staff can withdraw.

Zalaris offers a fully customisable and compliant Pay On-Demand service through our PeopleHub portal. The service is managed through a dedicated provider, giving employees a platform to request and access their pay early. Automated systems streamline HR processes by reducing the burden of managing manual salary advance requests. By providing employers the right to make the decisions and determine the guardrails for the system, and by making the entire journey a smooth one for employees, we at Zalaris are committed to revolutionising Earned Wage Access. Get in touch with Zalaris and we shall open doors for a more flexible and transparent payroll system.

Make the shift towards Pay On-Demand today!