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Payroll on demand – What is it and why is it so popular?

Last editedSep 20212 min read

COVID-19 and the series of lockdowns that followed have made reliable budgeting harder than ever. In the ongoing climate, it might not be enough to get paid every month or even every couple of weeks. Could payment on demand be the solution?

Otherwise known as ESAS (employer salary advancement schemes), payroll on demand strips away the formality of traditional pay packets and gives employees early access to their salary. For those of us struggling to stay afloat financially between paydays, this could be  life-changing.

How does payroll on demand work?

On-demand pay gives workers direct access to up to half of their salary, commonly for a fee. This is generally a more attractive option than a payday loan as no money is being borrowed. It’s money you would have been getting eventually, anyway. 

Not only does this option cost significantly less than a conventional loan, but it’s also almost completely risk-free. It’s not just for low-income workers either, as there are various options engineered towards all payment tiers. 

What does it mean for workers?

A survey by EY found that 80% of workers would use on-demand pay if it was offered to them. Given the tumultuous nature of the last 18 months, it’s easy to see why. Whether it’s to cover emergency expenses or to get a grasp of their budgeting, employees are eager to reap the benefits of the scheme. But what benefits does it offer employers?

What does it mean for employers?

While employers could look at payroll on demand as paying for work that hasn’t been done yet, they should instead view it as a means of strengthening the financial wellbeing of their staff. Employee wellbeing has never been a more pressing concern and a happy worker is a productive worker. 

If they go through an ESAS provider, employees will be charged directly for the service too, which means it’s completely free for the employer. There are companies that split the payment between employee and employer too, so there’s plenty of flexibility.

Examples of on-demand pay services

There are several payment services available, most of which are based in either the US or the UK. One of the more popular options is Instant Financial, which is used in the US by major fast-food chains like McDonald’s and KFC. 

This service sends a smartphone notification to employees after they’ve finished each shift and gives them the choice to either be paid for the shift there and then, or have the payment deferred. Other services such as Gusto allow employees to select their own payment schedules, whether they are salaried or paid by the hour. 

The pros of on-demand pay

  • Faster payments for employees when they actually need them. Having access to funds at a time that works for them allows employees to better budget their finances.

  • Offers a financial safety net for employees who might face unexpected bills.

  • If an employer has implemented a payroll on-demand scheme they are more likely to retain their employees.

  • Without personal finance worries to distract them, employees will be more focused and more productive.

The cons of on-demand pay

  • The fees might be significantly less than you would find with a payday loan, but they are still fees and some might feel these are not worth the convenience of on-demand pay.

  • Withdrawals are not exempt from tax and employees who forget to deduct taxes might find themselves in trouble with the tax department.

  • There is always a minor chance of pay errors.

We Can Help

If you’re interested in finding out more about payment on demand, or any other aspect of your business finances, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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