EarlyPay
What Is The Cost For On Demand Payments vs Advancing Salaries?
In this article, we will explore the cost differences between offering on-demand payments vs advancing salaries.
Payday is one of the most anticipated days for employees as it marks the end of the work cycle and time to receive their hard-earned money. However, according to a Finder survey, 52% of working individuals in Australia will occasionally or always fall short of their finances prior to pay day. Of those, 16% say they are running out of cash every month. Therefore, it should be of no surprise that there has been a surging interest towards on-demand pay in recent years.
On-demand payments allow employees to access the wages they have so far accrued at that time of the month, rather than waiting for their scheduled payday, putting financial management and control in the hands of the employee.
On-demand pay: early wage access for employees
Also known as early wage access (or EWA for short), on-demand pay means that employees can access a portion of their earned wages before their regular pay cycle, often facilitated through a mobile app or digital platform that is integrated with their employer's payroll software.
The costs of pay on-demand solutions
Here is a breakdown of some of the common costs associated with an on-demand pay solution:
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Transaction fees: Some providers charge a small fee per transaction, which may be paid by the employee or the employer, or a combination of both.
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Provider Fees: Some providers charge the employer for the service.
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Variability: Costs vary significantly between providers. Some on-demand pay platforms offer the service for free, while others have tiered-fee structures.
Advancing salaries
Advancing salaries are essentially a short-term loan for an employee to receive a portion of their earnings in their bank account prior to their regular paycheck. However, unlike traditional loans from a bank, these funds come directly from the employer. This advanced income will usually help employees cover unexpected expenses which may have arisen.
During harder economic times due to rising cost-of-living in Australia, businesses are more understanding to employees requesting advances.
However, advancing salaries has several drawbacks for employers, one being the cost of resources spent on delivering those advances.
The costs of traditional salary advances
Here is a breakdown of some of the common costs associated with a traditional salary advance:
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Administrative burden to payroll operations: Employers incur costs associated with processing and managing individual advance salary requests.
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Potential for disruption: An advanced salary outside of regular payday can disrupt payroll processes and create an administrative overhead for the business.
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Risk management: Employers bear the risk of employees not repaying the advance.
Comparing the business costs
Consider all the functions that need to be involved in providing an advance, management, HR, payroll. The cost of the manhours spent on advancing salaries will add up. Additionally, if an employee quits before the end of the month, the company may be left with a financial loss they may be unable to recover.
Since the company will be paying employees before the end of the month payday, the business may see cashflow issues if they have to borrow money to cover these costs, which can result in additional interest charges.
Analysing the costs
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On-demand pay will often involves transparent, per-transaction fees, while traditional advanced salaries and payday loans are more likely to have hidden administrative costs.
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On-demand pay is often an automated process, reducing the administrative burden compared to salary advances which tend to be manual.
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On demand pay is often provided by a third-party, shifting some of the financial risk away from the individual employer.
In essence, on-demand pay systems aim to provide a more structured, efficient, and transparent way for employees to access their earned wages, often with clear, albeit variable, costs. Traditional salary advances, while seemingly "free," can impose hidden costs on employers through administrative overhead.
We’ve covered the business costs that can be saved by offering on demand pay to your employees, but you also need to consider the expense of offering such a benefit. The price of the software will usually be determined by how many employees you have, and how much you support you want to offer them. The costs are often calculated on a per employee, per month basis.
Conclusion
In conclusion, both advances and on-demand pay come at a cost to business, but dependent on how large your business is, on-demand pay could make more business sense than advancing salaries.
With companies wanting to support their workforce through financial stress by providing them with instant pay options when they need it, on-demand pay can reduce the costs and resources of doing this manually whilst supporting their employee's financial wellness.
Not only does pay on-demand increase financial flexibility, as it is often considered a highly demanded employee benefit, this method can lead to greater employee retention for the business.
Find out how on demand pay can help you engage employees, boost productivity and improve retention.