On-Demand Pay: What is it and How Does it Work?

A 2021 Harris Poll found that 81% of U.S. workers would choose a job with an employer who offers on-demand access to earned wages over one who doesn’t. People often prefer flexibility not just in how they work, but also in how they get paid. That’s what on-demand pay offers.

On-demand pay allows employees to access part of their earned wages before payday, making it easier to manage cash flow and handle unexpected expenses. Let's break down what on-demand pay is, how on-demand pay works, its benefits and drawbacks, and what to keep in mind if you’re considering offering this option to your team.

What is On-Demand Pay?

On-demand pay, also known as earned wage access (EWA), enables employees to access a portion of their wages as they are earned, rather than waiting for the traditional pay period to conclude.

Here’s how on-demand pay works: Instead of getting paid every two weeks or monthly, employees can withdraw a portion of their earned wages through an app or payroll platform. For example, an hourly worker who has already clocked 40 hours but won’t be paid for another week can access some of those earned funds in real time.

Many on-demand pay providers partner directly with employers to integrate this feature into existing payroll systems, so wage advances are automatically tracked and settled when the normal paycheck is processed.

Benefits of On-Demand Pay for Employers and Employees

Offering on-demand pay can be a win-win for both employers and employees, contributing to a stronger employee experience while enhancing retention and satisfaction. Here are a few ways it can make a difference:

• Improves Employee Retention and Satisfaction: Access to on-demand pay can ease employees’ financial stress and boost morale. When employees feel financially supported, they’re more likely to remain loyal and engaged over the long term.

• Enhances Financial Wellness: Providing employees with early access to their wages can help them avoid high-interest payday loans or overdraft fees, promoting healthier financial habits.

• Increases Hiring Appeal: In highly competitive industries such as retail and hospitality, where hourly shift work is common, offering on-demand pay can set you apart as an employer of choice.

• Boosts Productivity: Financial stress can be distracting. On-demand pay can reduce this burden, helping employees stay focused at work.

• Low Impact on Cash Flow: Many on-demand pay providers cover the wages upfront and collect repayment through payroll deductions, so employers don’t have to disburse any funds themselves.

How to Implement On-Demand Pay in Your Organization

If you’re considering offering on-demand pay, the following steps can help you get started smoothly:

1. Research Providers

   Look for reliable on-demand pay providers that easily integrate with your existing payroll or Human Resources (HR) systems to ensure a seamless experience for your team.

2. Evaluate Costs and Fees

   Understand the pricing models. For example, some providers charge employers, while others may pass small transaction fees to employees. Be upfront and transparent about any potential costs.

3. Update Payroll Processes

   Collaborate with your payroll provider to track wage advances and pay cycles, making sure deductions and reconciliations happen automatically and on time. This keeps early payments accounted for and deducted from regular paychecks, minimizing errors.

4. Communicate Clearly with Employees

   Educate your team on how on-demand pay works, including access limits and responsible use guidelines. Clear communication helps employees make the most of this benefit.

5. Monitor and Adjust

   Gather feedback from employees and managers to evaluate the program's effectiveness. Use these insights to refine and adapt the offering, ensuring it remains effective and sustainable.

On-Demand Pay Challenges to Consider

While the benefits are clear, it’s also important to understand the potential on-demand pay drawbacks before jumping in:

• Administrative Complexity: Integrating new systems and tracking early wage access can add complexity to payroll processing.

• Fees: Some providers charge transaction fees that can add up for regular users. Employers should weigh whether to cover these costs or pass them on.

• Cash Flow Considerations: If the provider doesn’t front the funds, employers must plan for the impact on cash flow when wages are paid out before the next payday.

Weighing these considerations alongside employee interest can help you determine whether on-demand pay is the right fit for your team.

Build a Stronger Employee Experience with Justworks

On-demand pay is just one way to create a supportive workplace where people feel valued and motivated. From automated payroll and access to high-quality benefits, Justworks helps businesses create a more positive employee experience while streamlining administrative tasks. Get started with Justworks today to explore how our solutions can support your team and help you stay competitive as you grow.