Due to rising inflation, companies like airport hospitality services provider OTG Management have been providing financial wellness support to employees through earned wage access cards in Canada. Keeping this in mind, on-demand pay could be a helpful strategy using which employees won’t have to wait for weeks to withdraw their earned wages.
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In addition, a National Payroll Institute’s research study reveals that many Canadians are under the pressure of soaring financial expenses and living paycheque-to-paycheque has risen by 26% compared to the previous year. Considering this, employers may consider giving workers early access to their earned pay via a flexible payment method known as on-demand pay. Leveraging the direct deposit and attendance tracking features of payroll software, organizations can potentially enable an on-demand pay strategy for their staff.
What is on-demand pay?
On-demand pay —also known as earned wage access (EWA)— can be defined as getting access to earned wages whenever required. Unlike the traditional monthly payday cycle employees won’t have to wait for a specific payday to access their earned funds. Instead, they can request wages they’ve earned at any point.
Pros of on-demand pay
In this section, we will list some advantages of on-demand pay.
Can reduce the need for loans
Employees living paycheck to paycheck might experience more pressure to apply for loans to support their financial expenses. However, being able to manage expenses with early access to earned wages can potentially help them avoid this and manage their budgets more efficiently.
Can help employees respond to emergencies
Things may go wrong. There could be unexpected medical bills. Your employees could be grappling with the unexpected loss of loved ones or unwanted damages to automobiles and may end up requiring funds. Being able to access earned funds in an emergency can help your workers navigate personal issues more easily.
Can help improve employee retention rate
An on-demand payroll strategy can help low-income workers get the financial flexibility they need, which —in turn— can possibly result in less turnover and higher employee retention rates.
Can serve as a competitive advantage to attract new talent
People usually look at the benefits offered by an organization when looking out for a new job. According to a Gallup poll, 64% of employees believe that a significant increase in benefits or income is vital to them when switching to a new job role. As an organization, you may want to highlight on-demand payroll services during the hiring process that can potentially differentiate you from other competitors in the market and help you attract new talent to your business.
Cons of on-demand pay
Although the on-demand payment method has some advantages, it can also have some drawbacks. Employees might have to pay small fees to get their funds earlier than their specific payday period. There can also be restrictions on the amount they can access from their total earned wages, which may vary according to the earned wage access service provider or the organization they work for.
Therefore, it may be crucial to check the features and services offered by a specific EWA provider.
How does an on-demand pay strategy work?
Imagine you have a job as a nurse at a local hospital in your city and you work in a particular shift. In case you need your salary before your regular payday, you can ideally send a request to your manager to give you access to earned wages early. Your manager might then verify your working hours and process your earned funds for the requested period through their payroll software.
Using appropriate software that can manage the instant flow of funds, an organization may not have to worry about payroll miscalculations, keeping track of cash flows, or handling deductions. As such, an on-demand pay strategy can be a good option for both employers and employees.
What to consider when implementing an on-demand pay strategy
To implement an on-demand pay strategy, you may consider the following factors:
What can benefit employees the most?
Before you execute early wage access for your employees, it may be best to identify how much funds can be accessed and how often your workers can withdraw their wages in a month or a week. Try to take action based on the best way to benefit your staff by circulating an internal survey to gauge their needs.
Choose the right EWA provider/payroll software
Look out for payroll software that meets your needs and offers the right set of features that employees could be looking for. For example, consider choosing a product or provider with lower access fees to enable the flow of funds earlier than a particular salary period.
Organize financial wellness trainings for employees
Take some time to check if your employees understand the advantages of saving money while getting early access to their wages. You may want to think about organizing a training session for your workforce so as to emphasize the big-picture of financial wellness and ensure organizational adoption of the on-demand payroll method.
When there’s a lot of workload and budgets are tight, a flexible payroll method can help in better employee retention when increasing wages doesn’t seem feasible. Moreover, in organizations where retaining and attracting the workforce is a concern, an on-demand pay strategy can help them better compete in the market.