On-Demand Pay Options May Ease Employee Finance Concerns

On-demand pay options may help employees manage financial burdens during the new coronavirus outbreak, a payroll professional said June 3.

“We’re already seeing even greater urgency to deliver on evolving pay demands,” said Belinda Reany, vice president and general manager of the Employee Financial Services Venture at ADP LLC. “Workers now have new concerns around how they get paid.”

The ability to access pay as needed may help employees resolve new health and safety challenges, Reany said at the annual American Payroll Congress, which was held online because of the coronavirus crisis.

Many banks have reduced or stopped in-person operations, which may make funds inaccessible for employees who rely on paper check deposits, Reany said. Access to faster, paperless options allows employees to continue to pay emergency expenses and bills, she said.

On-demand systems generally rely on one of two payment methods, Reany said.

Employers may choose a pay system that gives employees early access to earned, unpaid wages Reany said. Funds equal to a portion of wages earned are paid in real time by the employer or a third party. The payments often are not considered wages and no tax is withheld from the advance, though amounts are verified through a direct connection to timekeeping or payroll data.

Under a second method, employers run real-time payroll calculations, allowing employees to receive all of their net pay.

Some on-demand systems allow employers to limit the amount of pay to a percentage of the employee’s net pay, or to limit the number of withdrawals in a pay cycle. Placing restrictions may deter employees from becoming too dependent on instant access options, Reany said.

“Employers and employees alike will need to balance security and the expectation for newer, faster, and more flexible payment options,” Reany said.