What's holding back the widespread adoption of on-demand pay?

On-demand pay has been touted as a welcome innovation to payroll for several years, but it’s still far from standard practice...
HR Grapevine
HR Grapevine | Executive Grapevine International Ltd
What's holding back the widespread adoption of on-demand pay?
Only one in ten employers currently offer on-demand pay

A staggering 90% of HR professionals say that the cost-of-living crisis has had some type of impact on employee wellbeing in their organisation, according to research from HR Grapevine.

With many workers feeling the pinch, and not all employers being able to increase wages, HR and payroll teams must consider alternative strategies to support the financial wellbeing of their employees.

On-demand pay has gathered momentum over the past few years as a convenient but impactful way to give staff greater autonomy over how and when they access their wages.

As unexpected costs or bills come in, the model also known as earned wage access (EWA) is welcome for many workers, as it can offer some extra support through tough economic circumstances.

Major employers like McDonald’s, the NHS, and Tesco have all taken advantage of technology developments in this field to provide their workforce with on-demand pay capabilities. And yet, despite the fact the tech is relatively low lift, only around one in ten employers are offering EWA per the CIPD’s reward management survey.

For all the conversation and gain in popularity, on-demand pay is far from standard practice. So, why are employers so skittish about making the leap?

Why isn’t on-demand pay standard practice?

Whether it’s referred to as EWA, on-demand pay, daily pay, instant pay, or same-day pay, this technology has developed an unfortunate reputation through misuse.

On-demand pay has become confused with some stakeholders falsely believing that it is a type of loan or an advance. Firstly, early access is only granted for pay that has already been earned (it’s in the name, earned wage access). Secondly, this money is – or should be - interest-free. Most providers will charge a small, flat fee per transaction which can help workers meet bills or payments on time and thereby avoid accruing debt. Most payroll providers say this method is 99% cheaper than the interest charged on short-term credit.

However, with some describing it as “like payday lending on steroids,” there have been (an albeit small) number of instances where the technology has been misused and high fees have been charged. Payroll leaders should be aware that a couple of instances of bad practice may leave some leaders, and employees, skeptical about the prospect of on-demand pay.

Business leaders who are considering introducing the benefit should speak with a professional advisor to make sure it is the right fit for their business and delivered effectively

Stephen Abbotts | Director of Payroll Services, Azets

“EWA is considered as a tool to promote financial wellbeing, and certainly everyone faces those unexpected moments in life,” suggests Stephen Abbotts, Director of Payroll Services at Azets. “However, there is an important consideration around duty of care. Employers don’t know the detail of anyone’s personal circumstances, and we must avoid EWA being used in the form of a continuous loan rather than for its intended purpose.”

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