Instant pay and pay-on-demand give HR managers a recruiting edge

In 2021, the U.S. economy experienced an unprecedented number of people voluntarily leaving their jobs—in some months at a record-setting pace—a trend that appears likely to continue in the months ahead. To support recruitment and retention efforts in this dynamic environment, HR managers employ several strategies. These may include launching or expanding benefits, offering remote work options, providing signing bonuses and other supplemental compensation, and training employees to take on new responsibilities. The thread that weaves together these and similar approaches comes down to one word: flexibility.

While flexibility usually refers primarily to policies and practices relative to employee work locations, hours, and time off, today it increasingly serves as a more expansive guiding principle in terms of how to recruit and retain employees. Indeed, in this candidate-driven market, employers that demonstrate a willingness and ability to accommodate each person’s unique situation, on multiple levels, put themselves in a solid position to attract and keep the right people.

Enter flexible payroll, or the ability to pay employees at a time other than at the usual end of a weekly or bi-weekly pay period. Pay-on-demand, an increasingly popular application of flexible pay, provides employees with just that—on-demand, real-time access to earned wages prior to an employer’s actual pay date.

Offering pay-on-demand gives employers a competitive advantage in the race for talent by providing a capability that supports what many employees want and need. For example, in today’s digitally driven, 24/7 world of transactions, consumers want to make purchases, pay bills, move money from one account to another, and conduct similar financial activities online and at their convenience; pay-on-demand tracks with that experience and expectation.

More importantly, pay-on-demand gives employers the flexibility to support employees in meeting an essential need: managing their financial health. Perhaps most significantly, pay-on-demand gives employees the peace of mind that they can meet their financial obligations whenever they occur. That could mean a need for funds before a regular payday to pay for an unanticipated event such as a car repair or medical emergency. Or it could be that some everyday expenses simply don’t sync with an employee’s pay cycle. That scenario could become more frequent in 2022 if inflation outpaces wages.

Regardless of the reason, providing pay-on-demand gives employees peace of mind that they can request funds as needed and know that they’ll be available from their employer. Many pay-on-demand apps also include a budgeting and saving tool, functionality for automatically paying bills, and other capabilities to help employees improve their financial health.

Better employee financial health has a ripple effect. Other benefits employers may see from offering a pay-on-demand benefit may include an increase in employee morale, better customer service scores, and reduced absenteeism.

In addition to helping enhance employee recruitment, retention, productivity, loyalty, and other HR-related aspects, other benefits of pay-on-demand to employers typically include that it is provided at no cost to them, maintains cash flow without interruption, and uses their current payroll process. Another benefit to a business is that the pay-on-demand provider typically “floats” the funds for early wages until regular payroll is run and the funds are paid back.

How else does it work?

The most effective, compliant process for pay-on-demand goes like this. An employee looks at their gross pay earned to date. They are shown their projected net (taxes and other deductions are projected by looking at historical data to determine estimated net pay) and the employee asks for access to a portion of their projected net pay prior to the regular pay date and specifies how they’d like to receive it. The employee receives their requested earned wages. That amount gets deducted from the employee’s paycheck (so it is reflected on the employee’s actual check stub) and the employer’s account on the check date when payroll is processed.

In addition to this pay-on-demand model, other methods of providing employers the benefit of flexible access to wages include instant payroll. This Real-Time Payments solution, similar to popular consumer apps that transfer money instantly from one account to another, enables companies to pay employees within 15 seconds of when a transfer of wages is initiated via The Clearing House Real-Time Payments Network.

Traditionally, employers process payroll a few days before their check date to allow for direct deposit transactions to flow through the ACH network. However, with instant payroll, employers can run a fully compliant payroll on the same day as their check and have their employees paid within 15 seconds. This allows employers to move up their check date to pay their employees sooner. Or there’s the even faster process of daily payroll where the employer can run an instant payroll every day for that day’s work. Since the Real-Time Payments Network operates 24/7, 365 (as opposed to the ACH network, which only operates M-F on banking business days), employers can run payroll at any time of any day to pay their employees. So now employers can run payroll at the end of each day, including weekends and holidays, to pay their employees immediately for the time they just worked.

Today’s hiring market means HR managers are constantly seeking new and creative solutions to support recruitment and retention. Many times that means being as flexible as possible with as many aspects of a job as possible. Paying employees when and how they’d like to be paid can serve as a top way to stand out among candidates and create goodwill among employees.

Eric Wade is a product strategy manager at Paychex and a recognized leader in the payroll, human resource, and benefits outsourcing industry. Eric has worked at Paychex for more than 27 years, and in his current role, he is responsible for payment and tax-related products. Paychex is a leading provider of integrated human capital management software solutions for human resources, payroll, benefits, and insurance services.