Movies, food, transport, and more—with just a few clicks in an app, we have access to a seemingly infinite amount of goods and services on-demand. With the ever-prescient forecasters of what the people want next, getting paid probably should have been the number one guess. Specifically, giving employees faster access to their pay by letting them request and receive all or part of their earned pay after they’ve completed the shift.

With a staggering 78 percent of U.S. workers living paycheck to paycheck, it’s no surprise that on-demand pay is swiftly growing in popularity. Advantages such as covering emergency expenses, reducing debt and staying on top of finances entice skilled talent to join companies that offer this practice. And employers can reap the benefits, as well: other than attracting top-quality talent, on-demand pay can help retain it, reduce absences and increase productivity.

It sounds like a win/win—and it can be, if businesses are smart about it. Offering employees the opportunity to receive pay daily, versus weekly or biweekly, can introduce some real challenges. For example: an employee at a restaurant enters a ten-hour shift. The next day, they request payment for those hours and receive it. It sounds simple enough, but how do we know these hours are accurate? What actual activities did that employee perform? What if this particular restaurant has a policy requiring shifts to stay under nine hours?

With no real-time visibility into their time and attendance, none of these questions can be answered reliably. Before embracing the new world of on-demand pay, employers should be sure to consider these key issues first:

Administrative challenges

As the most knowledgeable on employee attitude and morale, frontline managers will see on-demand pay as an opportunity to observe how employees respond to the change in payroll options, and how it affects the business. They may need to take on additional admin work if they must log each employee’s hours at the end of the day for payment to be made available.

The increased responsibilities don’t stop there: payroll teams must also now run payroll daily, as opposed to weekly or biweekly, adding to an already challenging operation. These potential management and administrative difficulties can add up to trouble if the pre-payroll process isn’t streamlined. Say the restaurant already paid the worker for ten hours; it doesn’t matter whether or not there’s a nine-hour limit—reversing the mistake once paid is messy and tedious, or simply impossible. Suppose this happens more than once, with more workers: The costs will slowly add up, creating an expensive and frustratingly preventable problem.

Compliance

Does this copmany exist regionally? Nationally? Internationally? Labor laws must be managed in each country, state, or city to avoid violation risks, but many businesses still struggle with any manual processes they haven’t yet worked out of the system, slowing down the workflow and complicating compliance even more. If a company already struggles with keeping compliance together, the problems will increase dramatically with on-demand pay.

Most importantly, employers should find out whether on-demand pay is even an option. If potential changes are made within payroll, businesses should first seek out legal advice to ensure that any new compensation practices comply with all federal, state and local employment laws.

Business policies

A modern option like on-demand pay will inevitably change a number of things within the company, and employees must be kept in the loop – whether it requires a new handbook, modifying training, or the addition of an employee-footed transaction fee, workers need to know before anything is officially implemented.

Furthermore, many businesses must support specific conditions, maintaining various rules and policies unique to that business or even location. Back to our restaurant example: this particular establishment has a rule that shifts must stay under nine hours a day. If an employee does enter over nine hours, it must be approved by their manager’s manager. This could introduce some complications if the restaurant relies on a basic system unfit to handle these circumstances neatly before paying out the employee. To avoid predicaments like these, employers must find a happy medium that can both reduce overhead and ensure accuracy.

Company-wide impact

Once on-demand pay is implemented, it’s important to keep an eye out for any resulting after-effects. How is retention? Has motivation changed? Employees and managers may develop a different relationship than we’re used to; given the more “contract-esque” nature of daily pay, employees may begin to feel differently.

On the other hand, of course, it may bring in more workers enthusiastic about the quick pay turnaround option. Understanding the effects—both negative and positive—will help employers assess what’s working and what isn’t, and adjust accordingly.

On-demand: The new normal

Each business is an individual case, so while exploring on-demand pay as an option, employers should take care to consider any and all possible implications of the process before reaching a decision. That being said, the needs of the workforce are evolving, and on-demand pay is simply a natural response to those needs. In an age of convenience and flexibility, businesses should be ready to accommodate workforce demands with a solution smart enough to handle it. This means utilizing advanced capabilities around time and attendance and payroll to meet those demands—even if it means payday is every day. And by doing their homework, employers can be prepared for it.

Maggie Deptuck is global senior vice president and general manager of SMB at Replicon.

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On-demand pay: What employers need to know

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