On-demand pay: Helpful perk or incentive for employees to mismanage money?

On-demand pay, often referred to as earned wage access, has gotten common in recent years, especially for low-wage hourly workers who occasionally—or even frequently—have trouble making their money stretch between paydays. Those workers appreciate being able to access their earned wages without having to wait until the next payday. Employers also like the on-demand concept because it allows them to offer a perk that helps attract workers. But both employers and employees need to consider the cons as well as the pros of the arrangement.

How it works

Third-party services, often payroll companies, take care of tracking employee earnings and making payments before an employee’s payday either as a direct deposit to the employee’s bank account or to a prepaid debit card.

On-demand pay arrangements vary significantly. Some programs include a fee for allowing workers to access at least a portion of earned wages early. Sometimes the employee pays the fee, and other times the employer pays.

Critics of on-demand pay claim it may not be as risky as high-interest payday loans, but it’s close. They point to the danger workers face if they live paycheck to paycheck. If they’ve taken part of their pay early—and perhaps paid a fee for the privilege—that’s money they won’t have on payday, meaning they might find themselves stuck in a cycle that keeps them from building savings or even being able to meet regular bills.

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