The future of the on-demand pay industry

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Let’s start from the past: payroll hasn’t changed in centuries. Since the beginning of time, payroll has always revolved around the employer. Employers have always been the ones to decide when to pay their employees.

During World War II, to prevent the inflation the U.S. had seen after World I, FDR requested that employers switch to a biweekly pay schedule. This was done to limit the cash Americans had at any point in time, to curb inflation. And employers chose to do the patriotic thing and so they moved to biweekly pay.

With all that behind us, why should hard-working Americans today wait until a designated payday to access the money they had already earned? Let’s face it — life happens between paydays. Everything from an unexpected medical bill to rent to vacation money might be needed in that timeframe. Arbitrary decisions as to when to pay don’t work for most employees. Those employees then seek highly inferior alternatives, like overdraft fees, to address the gaps caused by that system’s failure.

There are 131 million working adults in America, all of whom could use some features in our product set.

It’s still in the early days, with tremendous growth opportunities in a new industry. While COVID was difficult for many reasons, it enabled on-demand pay to move from important to essential. Americans finally saw the widespread need for flexible pay as hourly and essential workers were catapulted into headlines in a long-term, unprecedented emergency around the country.

In five years, we expect that at least 75% of U.S. businesses will offer a daily pay benefit.

From the employer’s standpoint, they have a radically engaged workforce. You see, when you put employees at the center of the pay experience, they actually start behaving differently. For starters, employees stay longer. Employers who offer on-demand pay report an increase in retention of 45%. Employees are more engaged and more likely to pick up extra shifts. Importantly, this is all accomplished without changing a single thing about the employer’s payroll process.

More than 60% of workers surveyed said if an employer offered more payment flexibility (e.g. the ability to select pay frequency, same day pay, or early access), it would make a difference in whether they would accept the job offer.

A new generation of on-demand pay apps offered through employers is marketed as a low-cost technological solution to break the two-week pay cycle by allowing workers access to their pay between pay periods, sometimes even daily. In addition to promising financial empowerment for employees, these apps are said to improve retention and recruitment for employers, something especially important in the tightest labor market in decades.

The future of pay offers on-demand, digital and more connected compensation options. Employers must begin exploring those options now because the technology is already here, and this future will benefit the worker, organizations and the economy itself.

Written by

Jason Lee is a fintech entrepreneur and the Founder and CEO of DailyPay, the current market leader in the on-demand pay software sector https://jason-lee.co/

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