Payroll

On-demand pay is becoming more popular, but it often comes with strings attached

On-demand pay is an increasingly popular perk, but there can be downsides for employees.
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Bokeh Productions

· 4 min read

For American workers struggling to make ends meet, waiting for a paycheck can mean forgoing basic necessities like groceries or gas. In an attempt to give employees a way to make ends meet when needed, more employers are now offering pay on demand, though it can come with a financial catch.

In theory, on-demand pay allows employees to request payment for the hours they’ve already worked before a pay period ends, with a degree of ease similar to summoning an Uber. According to Seth Ross, the general manager of Dayforce Wallet and Consumer Services at the on-demand pay provider Ceridian, it’s a practice that’s only grown more popular during the pandemic. “The last couple of years is really an inflection point where the interest and the demand in the marketplace is just taking off,” he told HR Brew.

Though it sounds altruistic and egalitarian for the worker, the process of on-demand pay varies across the many products offered by providers. And for employees, it isn’t exactly as simple as pocketing the money and going about one’s day.

What is on-demand pay? As companies sharpen their bayonets in the war for talent, allowing workers to bypass any traditional waiting period for money is an attractive battlefield strategy. “I am in a competitive war for talent, and I need to offer the most compelling set of benefits to attract and retain people, otherwise, I’m going to lose them. Offering pay on demand is a…highly valued benefit that companies can offer their employees,” Ross explained.

Ross says that employees do not incur fees for withdrawing pay early, making Ceridian an outlier. Eric Wade, product strategy manager at payroll provider Paychex, said the payroll industry currently functions on two basic revenue models: “Either we will charge the worker every time they access their pay, or we will make the product free for the worker, but they have to use our card product.”

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Paychex, which partners with the financial service PayActiv, is just one of many companies providing money in a pinch; DailyPay has a digital wallet that allows workers to access pay and some tips, and the instant pay provider Even designed an app that Walmart workers have used since 2019 to request pay.

Losing money on the back end. Many of the companies offering on-demand pay do so for lower-paid workers in the retail and fast-food industries—many of whom periodically rely on payday loans that consumer advocates have criticized as predatory. In order to make the venture profitable, on-demand pay providers usually subtract from the subsequent paycheck whatever a worker claims early. For example, if a worker wants to withdraw $50 of their net earnings before the pay period is over, they can do so, but “when the actual payroll goes to run, the on-demand pay provider will send that $50 deduction to the payroll system,” meaning that the worker’s next check is $50 lighter, Wade explained.

“When you get paid the money, the automated pay provider taps your bank account and takes the money back.”

The deduction aspect of on-demand pay could pose problems for lower-wage workers, especially if they don’t heed the fine print, Nelson Lichtenstein, a history professor and the director for UC Santa Barbara’s Center for the Study of Work, Labor, and Democracy, told Business News Daily last year.

“It just strikes me as exacerbating the endemic insecurities of the bottom half of the working class…It’s a nicer version of payday lending, but it is still payday lending.”—SB

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