On-demand pay: Who benefits and what you need to get started
In hourly, high-turnover industries, earned wage access can give you a competitive advantage.
Record-high numbers of people are leaving their current jobs, with businesses operating with hourly employees being hit particularly hard by the trend.
This scenario wasn’t caused by one thing but rather an amalgamation of factors. For one, the ongoing health crisis put many hourly employees on the frontlines, causing stress and concerns over their health and well-being. At the same time, a growing number of hourly employees are up against financial hardships.
When your employees’ livelihoods are defined less by paycheck to paycheck and more day by day, how can you help support them while also staying competitive in the job market? The answer is on-demand pay, a simple approach to help you attract and retain employees without adding additional costs.
Related: 4 things you need to know about on-demand pay compliance
Also known as earned wage access (EWA), on-demand pay enables you to pay employee wages as they’re earned instead of waiting until the end of each pay period. Payment on demand is a growing trend for companies in high-turnover industries like retail, food service, and hospitality, where there’s more competition for talent and usually less company loyalty.
Additionally, In a recent survey of hourly workers, Nucleus found that around 40% of respondents have resorted to expensive payday loans as a stopgap between paydays.
Benefits for your business
Regardless of the size of your business, you can take advantage of EWA functionality in some form and at virtually no cost with the software available today. Some of the main benefits you could experience with on-demand pay include:
Reduced absenteeism. Nearly a third of hourly workers have cited the inability to access earned wages as the reason they’ve missed at least one shift. No-shows and callouts are disruptive, time-consuming, and high cost-drivers that negatively affect the bottom line. By leveraging on-demand pay functionality, you could anticipate a reduction of absentee rates by more than 70%.
Decreased turnover. Backfilling an employee costs companies around $3,000 to $5,000 per person, and that’s on the low end of the range. If you have multiple locations and high turnover, the amount can easily grow to millions annually. In industries where hourly employees are quick to abandon jobs for better benefits, 70% would leave their current position for an opportunity that included on-demand pay services. This makes EWA business-critical for not only attracting but retaining quality employees.
Eliminating payday loans. As cited above, 40% of hourly workers use payday loans to manage living expenses between pay periods. These loans are convenient but equally burdensome with costly fees and sky-high interest rates. Conversely, with pay-per-day setups, the only costs for employees are with bank account transfers, which do not exceed $5.
Overcoming concerns to get started
When Nucleus started examining on-demand pay a few years ago, organizations were still uncertain about the feature. However, the reality of today’s job market has necessitated the adoption of payment on-demand to gain a competitive advantage — though not without some challenges.
The top concerns for companies considering on-demand pay are the upfront capital needed for payroll and its effect on the general ledger and payroll taxes. This is where single-suite human capital management (HCM) comes in, integrating into your existing systems to automate the on-demand process for you.
The HCM solution you go with will depend on the maturity of your current payroll software, but options exist for companies of all levels. Most function as no-interest loans, which your company pays back at the end of the pay period. With providers like PayActiv, Ceridian Dayforce, UKG Wallet, and others, your employees can access their wages without changing the overall payroll practices at your business.
As talent acquisition challenges continue, and with hourly staff quick to leave for other employment opportunities due to financial strain, employers are left to deal with the costs associated with replacement and new hire training. This makes offering on-demand payments in hourly industries no longer a “nice to have” perk but rather a necessity for attracting and retaining high-performing employees. Luckily, with the right human capital management technology in place, implementing pay on demand has never been easier.
Evelyn McMullen is a research manager at Nucleus Research, a global provider of investigative, case-based technology research and advisory services. The company’s ROI-focused research approach provides unique insights into the actual results technology solutions deliver, allowing users to cut through the marketing hype to understand real operational value.
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