After you’ve worked hard and put in the hours, your paycheck is the reward you get for a job well done. The problem is that payday typically rolls around just twice per month, leaving many workers scrambling if they encounter a pop-up expense in the meantime. It’s little wonder 72% of U.S. employees say they want access to their wages ahead of payday, according to a 2019 survey from The Workforce Institute at UKG.
The workforce is evolving, and more and more companies are embracing payroll systems that provide employees with greater flexibility. Enter on-demand pay. It’s a surprisingly simple tool that’s designed to empower workers while supporting their financial wellness. Here’s how on-demand pay works — and, most importantly, how to get the most out of it.
What is on-demand pay?
It’s exactly what it sounds like. On-demand pay essentially removes the barrier between you and payday, providing early access to earned pay. It’s a relatively new employer benefit that’s picking up steam. Of large U.S. companies that are made up mostly of hourly workers, less than 5% were using this kind of flexible pay arrangement in 2019, according to the Society for Human Resource Management — but that number is expected to jump to 20% by 2023.
On-demand pay allows workers to choose when they get paid. With each day you work, your earnings accumulate. You can then transfer funds to your debit card, bank account or payroll card whenever you like, usually for a nominal fee. If you have leftover funds come payday, you’ll receive this money with your regular paycheck. This service is available through whichever on-demand pay provider your employer has partnered with.
Benefits of using on-demand pay
On-demand pay comes with a number of built-in benefits. For one, it provides workers with immediate access to their own money. Whether you experience a surprise car repair, unexpected medical bill or anything in between, you’ll be less likely to reach for a credit card if you can tap your own funds instead. This alone can help break the debt cycle and put you on firmer financial ground. Staying on top of your income can also prevent overspending so you can avoid hefty late fees and interest charges.
Another perk is that on-demand pay can help you develop better saving habits. DailyPay offers extra savings features to help workers improve their financial health. For instance, you may choose to automatically transfer a portion of your earned income directly into a savings account.
Tips for getting the most out of on-demand pay
Understanding the ins and outs of on-demand pay can help you get the most out of this employee benefit. Consider these helpful tips before getting started:
- Make a plan for every transfer. On-demand pay is meant to provide workers with a greater financial cushion. As such, think of it as an integral part of your budget. A working budget tracks both your expenses and your income. At the end of the day, the earned pay you accumulate is an extension of your income. Whenever you make a transfer ahead of payday, you’re reducing your future paycheck. This certainly isn’t a bad thing if you’re using transfers to cover bills and other essential spending. Just be sure to deduct them on your budget so that it accurately reflects your incoming money.
- Up your financial wellness. Shoring up your financial health can help you stretch your paychecks even further. This begins with creating a workable budget and building up your emergency fund — two strategies that can dramatically reduce financial stress. The first curbs overspending; the second provides a pool of money you can use to navigate all kinds of financial emergencies. On-demand pay can provide financial peace of mind in the meantime.
Red flags to look out for
Unfortunately, not all on-demand pay providers are created equal. Remember that it’s your money you’re accessing. (You earned it, after all.) Be on the lookout for restrictive policies like transfer limits, which can cancel out any benefits. It’s also wise to steer clear of payday loans. These kinds of predatory lending practices are notorious for taking advantage of borrowers with sky-high interest rates. The average borrower pays $520 in interest alone, according to The Pew Charitable Trusts. But this number can be even higher, depending on how much you borrow and where you live.
On-demand pay is the opposite of payday loans. It’s designed to empower workers with early access to their own money — not charge exorbitant fees to borrow money from somewhere else. At DailyPay, we make on-demand pay easy. We’re also devoted to supporting your financial wellness every step of the way.