COVID-19 reminded us that disaster can strike at any moment, hurtling many people into financial instability. Between stocking up on essential goods, paying the upfront cost of personal protective equipment and work-from-home supplies, or covering urgent medical expenses, many Americans incurred significant unplanned expenses, writes Jason Lee, CEO, DailyPay.
Two in five of Americans do not have enough savings to handle a $400 emergency expense — when looking at millennials the savings buffer is even more worrisome. And according to data from October 2020, 70% say they are struggling to make ends meet this year. These numbers are bad news for employers — research shows that financially stressed employees are more distracted and miss nearly twice as many days of work. On-demand pay — providing employees access to earned wages ahead of payday — has transformed from a nice-to-have perk to an essential benefit. Offering on-demand pay is not only a compassionate thing to do, it is the smart thing to do. Companies that partner with on-demand pay providers see increased productivity, decreased turnover and experience a competitive edge in employee recruitment.
Closing the Gap Between “Bill Day” and Payday
Two in three workers are paid just once or twice a month due to outdated paper-based payroll processes and slow-moving bank-to-bank transactions. This antiquated system dates back to the Social Security Administration’s founding in the 1930s and has barely changed other than the creation of a direct deposit system. That inefficiency has real-life consequences for employees. Thirty-eight percent of timing mismatches between expenses and income resulted in the use of short-term loans that perpetuate a cycle of debt. This biweekly or monthly pay schedule does not account for real-life events. Whether catastrophe happens on a global or individual scale, increased financial stress leads to more distraction and lower productivity while on the job. On-demand pay technology can play a crucial role in addressing the gap between employee hours worked and receipt of paychecks. According to one on-demand pay provider, 90% of users confirmed that having access to the service during the pandemic reduced their financial stress. Further, 56% of users were motivated to pick up more shifts knowing they could access their wages before payday. Additional research shows 89% of workers would stay at their current company longer if their employer provided on-demand pay, while 79% would switch to an employer that offers the benefit. Early wage access can help employers with retention, productivity, and recruitment and improve their own bottom lines. However, not all on-demand pay solutions are created equally. Learn More: Rethinking the Payments Ecosystem to Fuel Financial Confidence in Today’s Workers
Key Considerations When Evaluating on-Demand Pay Vendors
Since its arrival in 2015, there are now over 40 on-demand pay providers globally. Choosing a vendor, implementing the technology and rolling out the program take time and energy for your payroll, HR, and IT teams, making due-diligence essential. There are a few key criteria you should consider when evaluating whether an on-demand pay solution suits your organization:
- Robust technical infrastructure: Choose a solution that is high-speed and high-quality to make your employees’ lives easier. Evaluate whether the provider has redundancy in place to prevent system failure, offers recoverability of backup data, and can demonstrate uptime metrics to ensure around-the-clock access.
Other features to consider are whether the provider offers an app, a popular option for younger generations and employees who want the convenience of withdrawing cash wherever they are. Also see if the provider provides unrestricted access to earnings, offers instant transfers or has a money management component that helps employees manage net earned income.
- Scalability: Consider not only whether a potential partner meets your current needs, but whether they can do so over the long term. For instance, some on-demand pay programs are tied to specific payroll systems and lack true interoperability. If you change systems, you will essentially need to start the program from scratch. To avoid this hassle, choose a vendor that can work with any payroll system.
Scalability also means the ability to consistently support your employees. If and when employees have questions, does your on-demand pay solution offer 24/7 customer support or will your payroll administrator be saddled with questions?
- End-to-end digital processes: Ensure your on-demand pay provider helps your business go paperless. We are moving toward a cashless society fueled by convenience, environmentalism, and most recently, safety concerns for preventing the spread of disease.
Many vendors pay your employees without the need for paper checks or cash. Certain providers can also disperse tips digitally, which is helpful for the food service industry. Digitalization reduces your carbon footprint, while also providing employees with a more secure and convenient way to track their finances.
- Data privacy and security: Security is a non-negotiable, so it is important to trust your on-demand pay provider’s data privacy practices. Evaluate their security credentials and certifications. Other aspects to consider include data encryption practices, multi-factor authentication, and if the provider conducts ongoing security monitoring.