On-demand pay is a form of instant gratification, giving employees access to money earned before their next pay period. This is a change-up from the typical pay schedules which operate on a weekly, bi-weekly, or monthly basis. At the end of a given workday, the employee would decide if they want to receive payment for that day or any hours they have not cashed out since their last paycheck. These services are provided through the employer’s payroll, and some charge an extra fee for this added benefit.

Many employees and employers have felt the ongoing effects of the global pandemic. From financial hits, job turnover at an all-time high, and an emphasis on employee wellness – the way we approach the workplace has completely changed. In response to this, companies have started offering additional benefits to recruit and retain employees, such as on-demand pay.

While these on-demand pay services are convenient, they don’t always come for free. It’s important to ask your payroll if they charge extra fees for this service. If they do, it’s wise to decide upfront if your company will absorb the fee or charge it to the employees that use the benefit.

It’s important to consider the tax implications when rolling out an on-demand pay option for employees. Most payroll companies do not tax an employee on withdrawal, but it doesn’t mean they won’t be taxed down the line. Employees should expect to be taxed appropriately for any on-demand pay when they receive their next paycheck. Administrators will want to keep a close record of this, as not appropriately taxing employees could cause more issues later.

Related Terms: Net Pay