September 29, 2021Payroll

On-Demand Pay: Flexible Pay vs. Earned Wage Access

In an age where just 39 percent of Americans could absorb an unexpected $1,000 expense — and 54 percent are living paycheck to paycheck — it comes as no surprise that workers today are turning to on-demand pay options.  

Instead of waiting weeks or even longer to receive the money they’re owed, workers want to get paid fast — in many cases, as soon as their shift ends. That’s where on-demand pay options like flexible payroll solutions and earned wage access (EWA) apps come into play. But not all fast pay methods are created equal. 

What is on-demand pay? 

On-demand pay refers to the provision of wages in response to a request by a worker. It gives workers the opportunity to get their pay when they need it. When pay is on-demand, the worker can choose when they want to get paid, be it on a weekly, biweekly, daily—or even hourly—basis. Usually, it’s a simple process where the employee requests their funds and those funds are deposited immediately or shortly thereafter. 

Usually on-demand pay means workers are getting their wages on a more frequent basis than what traditional payroll cycles allow. With the nature of work changing and more workers turning to gig and contract-based work, an on-demand payment method allows many workers to get paid for their work on the day they complete the task.

On-demand pay benefits

According to the American Psychological Association, 72 percent of Americans report being stressed about money. Unfortunately for employers, stress decreases worker productivity due to a lack of focus, decreased creativity, and a generally poor attitude, which often rubs off on coworkers, creating a ripple effect of toxicity.

To meet worker expectations around getting paid quickly — and to alleviate some of that financial stress to cultivate a happier, empowered workforce — more and more organizations are adopting on-demand pay platforms to ensure employees can access the money they’re owed faster.

When companies move in this direction, they have to decide whether to leverage one of two on-demand pay options: flexible paydays or earned wage access. Keep reading to learn about the differences between these two options so you can decide which one makes the most sense for your organization.

What is flexible pay?

As the name suggests, flexible pay is an approach to compensation that enables employees to choose when they get paid on their own terms. Leading flexible pay solutions are embedded directly within the organization’s payroll solution, preventing employees from having to hop from platform to platform to get their money.

While most employees get paid every two weeks or twice a month, flexible pay allows workers to select the payment cadence that works best for them — whether it’s getting paid every day, every week, or even staying on the company’s preferred payment cycle and occasionally drawing earnings on an as-needed basis. 

In other words, flexible pay puts employees in charge of their financial situation by ensuring the money they’re owed is always within reach. 

What is earned wage access?

EWA enables workers to withdraw some or all of the money they’ve earned through a third-party service before a standard payment cycle is complete. Funds can then be deposited via ACH into the worker’s bank account, loaded onto a card or added to a digital wallet, usually issued and managed by the EWA platform. 

In most cases, EWA providers only let workers access something like 50 or 60 percent of the wages they’re owed so that they don’t rely too much on early withdrawals. When employees opt to get paid via EWA, whatever they draw is deducted from their wages, and they get the balance on their regular payday.

Benefits of flexible pay and earned wage access

From alleviating financial stresses and building a happier, more productive team to making work easier for your accounting department and boosting profitability, there are a number of reasons why companies are embracing flexible pay and EWA, which we’ll explore in this section.

Improving employees’ quality of life

Every year, some 12 million Americans use payday loans, which come with excruciating interest rates that hover near 400 percent. On average, borrowers have to repay $15 to $30 for every $100 they borrow, which causes many of them to fall into an ever-escalating debt trap where they are forced to continue to take out new payday loans just to cover the fees.

By embracing on-demand pay and letting employees get paid as soon as they’ve earned their wages, you can help them avoid becoming victims of predatory loans. As you do your part to improve your workers’ overall financial situation, you also help enhance their quality of life since they no longer have to worry about how they’re going to pay their bills. 

Cultivating a happier, more engaged culture

Financial troubles cause depression, fear, and stress — which doesn’t exactly set the stage for a productive workday. Depending on how bad an employee’s financial situation gets, that individual could ultimately become toxic, spreading negative vibes across your organization and bringing everyone down with them.

On-demand pay can help you avoid this fate. With one less thing to worry about, team morale improves. Employees are happier, more engaged, and more productive, which brings us to the next benefit.

On-demand pay increases employee retention

Suffice it to say that employee turnover is expensive. And it’s getting even more costly thanks to the labor shortage, which is making it harder and harder for organizations to fill positions.

Nobody wants to work in a miserable, toxic environment. By reducing the likelihood your employees find themselves in stressful positions, you create a happy, supportive culture — one that people want to be a part of. This, in turn, increases the chances your workers stick around, which strengthens your bottom line.

According to recent research, 25 percent of payroll professionals agree that on-demand pay is critical for organizations seeking to improve the employee experience. As more and more organizations make on-demand pay the norm, these numbers will almost certainly continue to increase.

If your company is serious about employee happiness, you need to strongly consider offering on-demand pay. Otherwise, you might have worse problems than retention to think about — like struggling to attract workers in the first place.

Decreasing demand on payroll staff

You might think that adding on-demand pay options would make the payroll process more cumbersome and time-consuming, but you’d be wrong. As a matter of fact, on-demand pay enables you to make work easier for your payroll staff.

Instead of having to wait until the end of a two-week pay period to tabulate how many hours each employee put in, workers and managers submit and approve hours more frequently, which lessens the payroll administrator’s overall load.

Accelerating payments for new workers

When new hires come on to the job, they often have to wait a few weeks to receive their first check. Since most folks don’t have the luxury of floating three weeks’ worth of living expenses until that first check finally clears, on-demand pay is an easy way to ensure that new employees in less than ideal financial situations can get paid quickly when they start working.

As a result, on-demand pay increases the chances new hires have a favorable first impression of your company — which also improves the likelihood they’ll stick around for the long haul.

Now that you have a better idea of why more and more companies are integrating on-demand pay solutions into their payroll systems, let’s turn our attention to the next piece of the puzzle: why flexible pay is the better option than EWA.

Where flexible pay beats earned wage access

At this point, you’re familiar with the benefits of on-demand pay. But you might be wondering if all on-demand pay solutions are the same.

They’re not. Here are some of the reasons why flexible pay is the better option for organizations aiming to truly incentivize their employees with on-demand pay.

It’s embedded in your payroll solution

Since EWA platforms are third-party services, employees and payroll administrators need to manage yet another platform. Flexible pay platforms like Everee are an all-in-one solution, which simplifies the process and speeds up workflows while eliminating the frustration that comes with having to log in to yet another platform.

Workers aren’t charged any fees for on-demand pay

Most EWA solutions charge employees fees to access their earnings before payday. While some generous employers offer to cover these expenses, not every employee is that lucky. 

When you stop to think about it, forcing employees in poor financial situations to pay to get the money they’ve already earned doesn’t make a whole lot of sense — nor is it a persuasive incentive. A fee-based model is also a sticking point for regulators. In a 2020 recommendation, the National Consumer Law Center stated that “A rush to encourage fee-based [EWA] programs will simply result in a new form of payday loan.” Leading flexible pay solutions help you avoid this issue altogether by not charging any fees to the workers. 

Employees can withdraw all of the money they’re owed

Most EWA services set a cap on how much money employees can draw, which usually hovers between 50 percent and 60 percent of earnings. If you’re really committed to the philosophy of on-demand pay, you need to give your employees access to all of the money they’ve earned — which is exactly what flexible pay solutions make possible.

Employees can use flexible pay multiple times in a pay period

Though EWA solutions give workers access to the money they’ve made before payday, they’re only able to use the service once per pay period. When you’re tight on money, this pretty much defeats the purpose of on-demand pay. By truly empowering employees to get paid for the labor they’ve already done whenever they want, flexible pay delivers a clear advantage on this front.

It offers a stronger employee experience

By giving employees flexible, fast access to the money they’ve earned whenever they want it, flexible pay solutions truly improve the employee experience. This makes it easier to attract and retain talent — which, in turn, drives competitive advantage, profitability, and customer satisfaction.

What’s not to like?

Interested in paying your employees 100% of their earnings every day? See why Everee is the easiest way to make that happen.