Three Approaches to an On-Demand Pay Provider Model

In today’s rapidly evolving labor market, the concept of on-demand pay is gaining significant traction. As workers increasingly seek flexibility and immediate access to their earnings, businesses are exploring innovative solutions to attract and retain talent. On-demand pay provider models have emerged as a viable option for companies aiming to meet these demands while enhancing employee satisfaction, especially as they face unexpected expenses and emergencies.

This article delves into three distinct approaches that organizations can adopt when implementing an on-demand pay provider model. By examining these strategies, businesses can better understand how to integrate on-demand pay into their payroll systems, ultimately improve employee engagement and retention, and how on-demand pay is changing the payroll landscape.

The pros and cons of deciding which on-demand pay model is for you

Similar to other on-demand services (think: rideshare, grocery delivery), where you can reap the benefit as soon as you place an ‘order’, on-demand pay works by enabling employees to access earned pay without the financial stress of having to wait until a traditional payday or rely on standard payday loans. This type of paycheck advance is typically offered as a voluntary benefit (and one made even better by putting no financial liability on the employers’ payroll systems).

As with most financial benefit programs, there are a lot of factors you need to consider before implementing company-wide — especially compliance regulations. When taking the first steps towards an on-demand pay benefit, there are typically three main frameworks to consider:

• Employer-funded
• Wage deduction and debiting
• Integrated payroll

1. The Employer-Funded Model

Pros: Some on-demand pay vendors require the employer to fund employee early transfers. This model isn’t much different than your company running payroll daily. You’re responsible for funding payments and updating paystubs and other records. Meaning, fewer adjustments from your known, established processes.

Cons: In this model, more work is required from your payroll team because they’re simply funding payroll early. In addition, you need to have sufficient funds set aside for your on-demand pay vendor to draw from to meet the demand for employee transfers during each pay period. Tax authorities also hold you responsible for making tax withholdings on partial payments as they’re made.

2. Wage Deduction & Debiting Models

Pros (wage deduction): In the wage deduction model, on-demand pay providers invoice your company for all transfers taken within the pay period, and then you must deduct any transfer amounts from the employee’s paycheck. The upside? In our opinion, not much.

Cons (wage deduction): This approach results in modifications made to the employee’s pay stub, which can be construed as wage theft, a practice that’s illegal or restricted in 23 states. Therefore, this model is neither paystub nor wage law compliant. This can be detrimental to employees who are currently living paycheck to paycheck.

Pros (debiting): Also known as the “payday lender” model, the debiting model is often used by on-demand pay vendors in states where the deduction model can’t be used. In this model, the vendor debits the employee’s bank account on payday to recoup any early transfers taken during the pay period.

Cons: (debiting): This can lead to non-sufficient funds fees and confusion for the employee. This model also creates reputational and regulatory risk for your company.

Both of these models can create additional work for your payroll team if employee wage disputes arise on payday.

3. The Integrated Payroll Model

Pros: An on-demand pay provider funds all employee transfers and pays them back through your normal payroll process. You run and remit payroll as you always have, and there’s no requirement to set aside payroll funds because the provider handles all employee early pay requests, giving them instant access.

This is the approach used by high-quality, reputable on-demand pay providers, like DailyPay, one of TEAM Software’s strategic partners for on-demand pay. Other benefits these on-demand pay apps offer include:

• Employees receive up to 100% of their payroll on payday in their designated account.
• Employees can have their funds deposited (direct deposit) into any account of their choosing—a bank account, debit card, pay card, or pre-paid card. (Some on-demand pay vendors require that you use their paycard or their payroll system if you want to offer on-demand pay service.)
• When using an on-demand pay provider like DailyPay, their expert team manages compliance with regulations and upholds security standards (removing the liability from your team while taking advantage of this payroll service to reduce financial stress from your employees).

Cons: In our opinion? Again, not much. This type of approach isn’t for companies that want to shoulder liability 100% internally or not look towards expanded employee benefits. Realistically, though, there are possible benefits for any company to take advantage of.

On-demand pay has been proven to reduce turnover and give employees peace of mind, saving companies potentially millions of dollars in turnover costs and leading to improved employee retention. DailyPay’s research shows that companies typically see up to a 70% reduction in turnover and twice as many candidates for open positions because this is a benefit that employees want and need.

Learn more about how early wage access programs can help improve retention and reduce turnover.

DailyPay is TEAM Software’s preferred partner and leader in the North American on-demand pay provider marketplace. With a fortress balance sheet that’s able to meet the transfer demands of employees in all of our client companies. With deep experience serving large enterprise organizations, including Kroger, Adecco, and Lidl, DailyPay is highly favored by Fortune 100 companies. In addition, companies that use DailyPay typically see a 35% adoption rate, which is three times higher than other on-demand pay solutions, according to DailyPay research.

Partnering with TEAM Software

Partnering with TEAM Software by WorkWave can significantly benefit your security, cleaning business, or facilities management business. This security software is designed to streamline operations, improve efficiency, and ultimately help you grow your client list. Here are some key benefits and key features of using TEAM Software by WorkWave as your company’s system:

1. Efficient Employee Management: You can easily schedule shifts, assign tasks, and track employee performance, ensuring that your team is working effectively and efficiently.

2. Real-Time Communication: The software allows for real-time communication between you and your team, enabling quick responses to client requests or changes in scheduling.

3. Automated Invoicing and Billing: Fully automates the invoicing and billing process, making it easy to keep track of payments and ensure timely billing for your clients.

4. Reporting and Analytics: Offers robust, detailed reports and analytics tools that give you valuable insights into your security business performance, allowing you to make data-driven decisions to optimize operations and grow your client list using in-depth analytics functions.

Closing Thoughts

In an increasingly competitive job market, providing innovative benefits like on-demand pay can significantly enhance employee satisfaction and retention. The partnership with DailyPay not only alleviates the compliance burden from internal teams but also positions companies as attractive employers by meeting the financial needs of their workforce. With proven results in reducing turnover rates and increasing candidate interest, it’s clear that implementing an on-demand pay system can be a game-changer for businesses looking to enhance their employee value proposition.

By integrating early wage access through DailyPay, companies can offer a benefit that resonates with today’s workforce, which increasingly prioritizes financial flexibility and immediate access to earned wages. This not only promotes employee well-being but also fosters a culture of trust and loyalty.

Moreover, the partnership with TEAM Software ensures that organizations in the security, cleaning, and facilities management sectors can streamline their operations while enhancing employee management capabilities. The combination of DailyPay’s on-demand pay solution with TEAM Software’s robust management platform creates a powerful synergy that helps organizations improve efficiency, retain top talent, and ultimately drive growth. See it for yourself; request a demo today!