on demand pay and on demand wages benefits for employees and employers

Have you ever questioned why you don’t pay your workers more often?

If you’re like most businesses, you probably don’t offer employees on demand pay. Instead, you probably process wages twice a month or biweekly, which is when 63% of American workers are paid, according to the Bureau of Labor Statistics.

Your reasons behind that pay cycle may be cash flow and liquidity shortages. After all, if you do not have the money on hand, you can’t pay your workers.

But many American businesses process payroll only twice a month for different reasons. Most businesses are held back by the time and resources required to transfer and reconcile those wages. 

This doesn’t mean that you should accept those pay cycles as the norm.  After all, paying your employees more frequently could be a competitive advantage in a tight labor market. 

So if you’ve wondered how you could pay your employees more often without extra hassle, consider a complementary solution to your regular payroll processing: on demand pay.


What is on demand pay?

On demand pay or earned wage access (EWA) is a supplemental program allowing your employees to request their money on demand.

This way, you can maintain your normal pay cycle, but your workers have the flexibility to claim some of their wages early when they need to.


How does on demand pay work?

To offer on demand pay, you will need to partner with an EWA partner in addition to  your regular payroll processing.

Your workers will then be able to log into a self-service portal and request the portion of their wages that they have earned up to that date and time. Their money will then be processed either within the same day or by the next day.

Most EWA vendors charge a small fee per transaction, so you can decide whether you will cover the cost as the employer or pass that cost on to your employees.


Here’s why on demand wages are important

So why should you seek out an EWA solution and establish an on demand wages program for your employees?

Think about it this way: just as having better control over your cash flow can help your business grow and operate more efficiently, your workers need flexible access to funds for their own personal finances. When your workers can get money as they need to, they will be less stressed about money and more productive.


Everyone has unexpected costs

Some studies show that nearly two-thirds of Americans are living paycheck to paycheck in 2022. 

Yet when you process those paychecks only once or twice a month, a single emergency can spiral an employee’s finances out of control. 

A visit to the hospital, a sudden car malfunction, a family emergency requiring a last-minute ticket on a cross-country flight—the possibilities are endless. Yet when your workers don’t have the money saved up to pay for those sudden expenses, they don’t have many options to turn to.

Without flexible access to their wages, your employees have few options, none of which are ideal:

  • Avoid paying and rack up credit card, overdraft, or late payment fees.
  • Take out predatory and high-interest payday loans.
  • Pick up another job.

And when your employees are forced into making bad financial choices to cover expenses, their wellbeing and mental health suffer.


Benefits of on demand pay

As the employer, you can help your workers avoid falling into precarious financial situations by offering on demand pay.


Financial safety nets improve productivity

78% of employees say that high financial stress is hurting their productivity.

With EWA, you can rest assured that your workers can fully dedicate themselves to their task without financial worries nagging in the back of their minds.


Attract and retain talent

Since most employers still don’t offer on demand pay, by adding that option for your business you will stand out as a great place to work.


The “care” factor

By helping ease their financial strain, you can show your employees that you truly care about them.

EWA platforms are easy to use, don’t require approvals or back-and-forth communication, and help your workers claim an additional degree of control over their finances. 

As the company providing reliable access to instant withdrawals, you will be able to drum up a lot more loyalty and dedication from your workforce.


How to stay compliant with on demand payment

As with any other payroll processing, on demand payments have their own compliance regulations, both federally and at a state level.

According to the Truth in Lending Act for Earned Wage Programs by Consumer Financial Protection Bureau (CFPB), your compliance requirements will be different depending on how you choose to cover the cost of an on demand pay service:

  • If your employees pay the transaction fees, then the federal government will consider those payments as a loan and you will have to comply with the Truth in Lending requirements.
  • If you are covering all the associated fees, then your on demand pay offering is a “Covered EWA Program” and exempt from loan and credit requirements.

To be considered a Covered EWA Program, your on demand payment solution should have the following characteristics:

  • EWA is offered through a third party, not directly from you to your workers.
  • The amount employees can take out does not exceed the amount they’ve earned by the date and time of each transaction.
  • Employees are not paying any fees for using the service.
  • Employees cannot be sued or put into debt collection proceedings if the payroll fails.


Consider offering on demand wages to your employees with Orum.io

If you like the sound of adding an on demand wages program besides your typical payroll processing, consider Orum as your EWA processor.

To learn more, contact us here.