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On-demand pay: an overlooked employer benefit

A recent survey conducted by the Federal Reserve Board revealed that 40% of respondents can’t cover a $400 unexpected expense. Research from CareerBuilder shows that more than three-quarters of full-time workers in the U.S. live paycheck to paycheck. Employee turnover in all industries—and especially in long-term care—is making HR leaders and executives look for new ways to improve employee retention like on-demand pay.

On-demand pay

Traditionally, employees receive a paycheck on a two-week cadence. But for a growing number of younger employees, this schedule may not fit their current financial needs or expectations. On-demand pay, or what advisory firm Gartner refers to as flexible earned wage access, may offer an additional tool to boost employee retention by offering access to earned wages before a regular payday. This new benefit category allows employees to access earned wages that have not yet been paid out, without the employer needing to front the capital. It does not require any changes to employer payroll.

A growing number of organizations are adopting software solutions that can support on-demand pay. This payment system is primarily targeted at part-time workers or low-income employees. Gartner data shows that fewer than 5% of large U.S.-based companies with many hourly workers currently use an on-demand pay solution. But this is expected to increase to almost 20% by 2023.

Here’s how on-demand pay works: If an employee works on Monday, he/she will have access to wages totaling 30 to 50% of the hours they worked the previous day. The percentage of pay available is based on how much a company decides to hold back to cover taxes and garnishments. The wages can be deposited to the employee’s bank account, or in most cases, be paid on a debit card that can be used wherever credit or debit cards are a valid form of payment, including ATMs.

There are many benefits to on-demand pay, but as with any tool, there are some barriers to adoption such as verifying that an employee worked the recorded hours, integrating payroll systems, and in cases where there is not integration, the possibility of adding payroll staff to handle the increased administrative burden of manual process and pay reconciliation. States are just beginning to pass legislation covering on-demand pay, so employers should make sure any potential on-demand pay provider is operating within those rules.

These solutions require integration between the on-demand pay provider and the payroll database. It’s important to look for a financial solution that can create an export file of employees’ demographic information to transmit to the on-demand pay provider. The system should also record early access wages that have been paid and integrate with actual hours worked as recorded in time and attendance software.

Key points to remember

Here are some key points to take away. For employees, on-demand pay can mean faster payments and the flexibility to cover unexpected expenses or emergencies without needing to use other potentially expensive alternatives. However, it’s important to note that some on-demand pay solutions do charge employees a fee to use the service. In addition, most solutions don’t tax employee withdrawals, even though that income is not tax-exempt. This means the employee is still responsible for taxes on wages that are paid on demand.

For employers, on-demand pay can be a useful tool to recruit and retain more employees. There are reports that employers are seeing success keeping staff with their organization for longer periods, reducing churn. Offering on-demand pay can also alleviate employees’ financial worries, helping them to stay focused on their work. And by using an on-demand pay provider, employers are eliminating off-cycle, early paycheck processing currently handled by human resources staff, which yields direct cost savings.

Long-term post-acute care providers continue to face staffing challenges and know the cost of recruiting and training new employees is significant. A growing number of employers are finding that on-demand pay can help increase staff retention and engagement, and at the same time, employees find it a useful tool to help alleviate unexpected expenses. In today’s labor market, it makes sense to consider adding on-demand pay to your set of benefits.

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Mauricio Hermosillo
Mauricio Hermosillo

Mauricio Hermosillo is a Product Manager for MatrixCare. He has spearheaded new business development throughout the U.S., Latin America, and the Caribbean for multiple brands, leading new product launches and establishing strategic partnerships across the region. Mauricio earned his MBA degree from the University of Texas with a major in Global Leadership.


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