August 3 2021

On-demand pay: The way employees are paid is changing

Since the early 20th century, businesses have gradually made employees wait longer and longer to receive their pay. Employers realised the benefits to their business of paying employees monthly and this became the norm. But monthly pay is coming to an end. In its place is a safe, convenient, and instant solution: on-demand pay. 

Most employees have never questioned their pay cycle. They have simply accepted that, in the majority of workplaces, they get paid once a month. 

So what’s changed exactly? Advances in financial technology (fintech) have opened doors that were previously firmly shut. 

One of these areas is the way employees are paid. It’s called earned wage access (also known as EWA) or on-demand pay. 

Earned waged access allows employees to tap into the money that they have already earned. It’s not a loan. It’s not a salary advance either, since employees can only access pay they have earned (and not any future earnings). 

Essentially, earned wage access gives employees on-demand access to their pay. So employees no longer have to wait until payday to get their paycheck. 

Industries such as hospitality and healthcare have started the pay revolution. Thousands of employees are already enjoying the benefits of getting paid when they want. 

A step backwards: From daily to monthly pay

Despite what you may think, employees weren’t always paid monthly. Monthly pay is actually a 20th-century phenomenon and one that seems to have stuck.

If we take a look back in time, it was far more common for employers to pay their employees more frequently. Weekly, or even daily pay was normal. 

If an employee needed money, they knew there was only a short wait until they would receive some. There was no need for a salary advance or to consider a loan because they only had to wait a few days until payday.

Monthly pay favours employers

As business processes became more sophisticated, monthly pay cycles became more attractive. Instead of processing pay every week, they could switch to running payroll just once a month. 

Monthly pay cycles streamlined payroll systems. This approach benefitted employers in multiple ways. 

The big benefit for employers was financial savings. They needed fewer resources to run payroll just once a month. Monthly pay made sense for managing cash flow too.

Delaying employees’ earnings meant companies could use that money to help the smooth running of their business. 

But when the monthly pay trend caught on, employees were left scrambling to re-adjust. 

Receiving a large sum of money only once a month meant employees had to be incredibly disciplined to make it last. Budgeting for 30 days is challenging, especially when unexpected events or expenses come up. 

Low levels of financial capability makes it hard for some employees to resist the temptation of a payday splurge. Overspending in the first few days of being paid is without a doubt a direct result of the monthly pay cycle. 

The monthly pay cycle creates financial stress that impacts employees’ ability to focus and, at its worst, prevents them from attending work. 

So how can the needs of employers and employees be balanced when it comes to pay frequency? 

Finding a win-win pay solution 

Employers are in a difficult position. They recognise and appreciate the difficulties that employees face as a result of the monthly pay cycle. 

But as we’ve seen, paying employees more frequently than once a month has consequences on businesses’ cashflow and running costs. 

So what if there was a way for employers to let their employees choose how often they are paid, without it impacting their business?

Openwage has designed an on-demand pay platform that does exactly that. 

Openwage on-demand pay

On-demand pay through Openwage’s pay platform will revolutionise the way employers pay their employees. Openwage’s pay solution is win-win for everyone. 

Openwage is free for employers and there’s no impact on their cashflow. This is because Openwage provides the funds when employees transfer their on-demand pay. Employers continue to run payroll once a month.

We’ve kept the needs of employees clearly in mind too. Our safe and convenient pay platform allows employees to choose how often they’re paid. We only charge employees a low, fair, and transparent fee per transfer to deliver an affordable on-demand pay solution. 

Employees can access up to 50% of their gross monthly salary that they’ve earned so far during the current pay period. This ensures employees don’t access more than they earn and risk getting into financial harm. 

An end to fixed pay cycles

Today’s society is characterised by on-demand living. As technology has advanced and new apps have appeared, the need to deliver services instantly has only increased. 

Services that have been forced to adapt include:

  • Grocery deliveries 
  • TV services 
  • Rides and taxis 
  • Delivery of on-line purchases 
  • Health advice 
  • Access to learning

These are all things that we know we can access in an instant. So why should earnings  be any different? 

Since employees have already earned the money, doesn’t it make sense that they should be able to access it when they want or need it?

How on-demand pay benefits your employees

On-demand pay marks the end of the rigid pay method that employees have had to endure for so long. 

With earned wage access, employees get financial flexibility. They get the freedom to choose how often they get paid. The freedom to use the money that they’ve earned at the time that they need it. 

Financial flexibility helps employees take more control of their finances. One of the biggest benefits of on-demand pay is that employees can start saving a little each week and build an emergency fund too. 

With Openwage, employees can now align their income and expenses so the bills don’t pile up. Payday splurges are less likely too. This is because employees can get their pay more often and in smaller chunks, making it easier to budget. 

The ability to access on-demand pay has a positive impact on your employees’ stress levels too. They know that they have a financial safety net in place should they need it. 

If an employee needs an emergency repair or some other unexpected expense, they know that they can get their pay instantly. 

On-demand pay can help foster good financial habits and provide a much-needed boost to employees’ financial wellbeing. 

Reducing employee exposure to high cost credit

Only getting paid once a month requires a high level of financial capability to manage that money carefully to avoid running out. Often, financial capability levels are lower among employees in lower paid jobs. 

A lack of financial capability leaves millions of employees at risk of resorting to payday loans, credit cards, and overdrafts for extra cash while waiting for payday. 

These are all forms of high-cost credit that take advantage of people at their most vulnerable. Confusing APR rates, lengthy terms and conditions, and extortionate fees make these forms of borrowing unwise and unsustainable.  

Without careful management of payday loans, credit cards, and overdraft facilities, employees can become buried in debt that takes years to clear. The cycle of debt takes its toll on physical and mental wellbeing, sometimes with heartbreaking consequences. 

Openwage is not a loan

A common misconception when it comes to on-demand pay is that it’s another loan or form of borrowing. 

It’s important to understand the difference between a salary advance and earned wage access. 

A salary advance allows employees to access money they haven’t yet earned. This isn’t problematic in itself. But it does rely on that employee carefully managing the money to avoid overspending and then not having enough for essential living expenses. 

However, Openwage is definitely not a loan. Employees can only access money they have earned up to that point. And it’s completely voluntary so if an employee doesn’t need to access their pay before their usual payday, they don’t have to use the service or pay for it. 

When their usual payday arrives, employees get the remainder of their pay. Any on-demand pay they’ve accessed during the month and the fees to make the transfers are taken off too. 

A happier, more productive workforce

Poor financial wellbeing has a damaging impact on the workplace

59% of people say that money worries impact their performance at work Financial Capability Survey 2018)

Even more worryingly is that 4 million days are lost every year in the UK due to financial stress (Aegon, Financial Wellbeing Index 2021).

19% of employers reported an increase in absenteeism attributable to poor financial wellbeing. The same study found that 22% of employers experience a decrease in productivity due to poor employee financial wellbeing (Close Brothers’ Financial Wellbeing Index 2019).

On-demand pay can alleviate financial stress, resulting in a more motivated and productive workforce with better attendance levels.

On-demand pay is here to stay

Openwage is free for employers, there’s no impact on cashflow, and it can help attract and retain the best talent. 

So with no risk to your company, why not join the revolution? in touch today and find out how Openwage can help your business. 

The information in this article is for general information only. It does not constitute professional advice from Openwage. Openwage is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information in this document relates to your unique circumstances.