Here's what you should look for in an on-demand pay provider.
For decades, most workers have been paid on a semi-monthly or bi-weekly basis. But, with workplace and personal financial needs evolving, more and more employers are considering on-demand pay solutions. By reducing the number of days in traditional pay periods, employers provide employees and gig workers access to earned compensation when they need it.
According to a 2020 EY study, 70% of U.S. and U.K. employees experience chronic financial stress, with 35% falling financially short between paydays. Additionally, across 37 developed countries, EY found that 60% of households save less than 10% of their monthly wages, don’t save at all, or are in the red.
75% of respondents reporting financial pressures also indicated a decline in health and wellbeing. With 20% of worker turnover caused by financial pressures, this stress costs U.S. and U.K businesses an estimated $300 billion annually.
There’s no doubt the workplace is changing. The global pandemic has magnified this evolution over the past 15 months, and alternative pay solutions are one significant way to move forward with this change.
With increasing part-time and gig employment, stagnating wages and savings growth, rising personal and household debt, later retirement, and automation, on-demand pay offers a “compelling economic case for employers and materially better financial outcomes for employees when compared to the many alternative financing options,” according to EY.
Offering on-demand pay enables workers to better coordinate their income and expenses and build a financial safety net for emergencies while reducing personal and workplace financial stress. For employers, it increases worker loyalty and retention while contributing positively to the well-being of their workers.
In this article, we’ll highlight what you should consider when looking for an on-demand pay provider. First, though, let’s look at some pros and cons of this growing payroll method.
The overall benefit of on-demand pay is that workers can access their wages as they earn them, helping alleviate financial pressures between paydays. Providing quicker payments to workers and helping them build a safety net eases financial pressures and boosts productivity, engagement, and retention.
Further, on-demand pay presents a premier upskilling opportunity for workforce management systems and HR tech platforms, delivering a return on investment (ROI) and revenue stream with no risk.
Now let’s weigh some cons for on-demand pay. On-demand pay fees are typically passed to the employee, not the employer, meaning they pay each time they access their earned wages outside of the traditional payroll period. As employers implement on-demand pay solutions, they should be mindful of this fact, looking to companies like Clair that don’t attach fees to wage advances for the employer or employee.
As with any workforce management tool, you should weigh the pros and cons and conduct due diligence on the offered solution tailored to your needs and goals. Let’s look at three things to consider when hiring an on-demand pay provider.
What fees do you charge to employees?
When considering an on-demand pay provider, fees should be a top concern. As referenced above, if fees are passed along to employees, it could cause frustration and friction, potentially limiting use. Look for a provider that genuinely offers free on-demand pay, benefiting both workers and employers.
When understanding the fee schedule, in addition to asking about the wage advance fees, be sure to inquire about costs associated with the following as well:
Instant transfer fees
External transfer fees (such as transfers to other banks)
Fees tend to add up—sometimes without us even realizing they are. Protect your client’s bottom line and their workers’ wallets by understanding just what you’re getting and how much it costs.
What is your strategy for ensuring state-by-state compliance, especially if you charge fees to consumers?
When choosing the best on-demand pay solution for your platform, understanding how that provider approaches compliance is mission-critical to future operations. For example, let’s revisit wage advance fees. If providers subtract expenses from on-demand payments, they’ll potentially be subject to varying state laws, regulations, and enforcement, such as California’s stringent wage laws.
Additionally, the withheld fees and the deferred taxes (until the regular payroll hits) may also cause concern among states, requiring changes to payroll processes, procedures, and reporting. Not only is this a headache, but it’s potentially ripe with compliance issues.
When conducting your due diligence, ask about how the on-demand pay solution may impact your compliance — now and in the future. For example, because Clair partners with a national bank, it’s not subject to state-by-state laws affecting payroll and withholding. Because of this, Clair is “future-proof” against state-by-state regulations, mitigating or eliminating risk. Also, because Clair works within your existing payroll processes, you’ll reduce compliance concerns and administrative burdens.
What is your implementation and integration process like?
When implementing and migrating this opportunity onto your platform and app, you’ll want a specific timeline, knowing the fastest way to provide workers with access to on-demand pay.
You should also understand the integration process, ensuring it’s robust, smooth, and seamless, giving you the option to integrate with numerous modern APIs. By working with a provider that focuses on the top APIs tailored to workforce management providers, you can better incorporate on-demand pay specifically to benefit your customers as well as your organizational goals, giving you much-needed flexibility in today’s evolving workplace.
And don’t forget integration with your mobile app. Using plug-and-play, user-centered apps, you offer additional value-add to workers by giving them an opportunity to view financial snapshots, savings tools, and savings reminders, helping them better their financial wellness.
Providing on-demand pay solutions is an employee-focused, future-focused approach, helping your customers attract and retain better talent while increasing your clients’ loyalty and retention. If you want to learn more about how best to choose your on-demand payroll solution, contact Clair today for additional insights.
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