What is the cost to businesses for on-demand payments vs advancing salaries?

Payday is one of the most anticipated days for employees as it marks the end of the work cycle and time to receive their hard-earned money. However, according to an EY report, 35% of working individuals fall short of finances prior to payday. And with 72% experiencing financial stress at least once a year, there's no surprise that there has been an increase of interest towards on-demand pay in recent years.  

On-demand payments allow employees to access the wages they have so far accrued at that time of the month, rather than waiting for their scheduled payday, putting financial management and control in the hands of the employee. In this blog, we will explore the cost differences between offering on-demand pay vs advancing salaries.  

Advancing salaries 

Advancing salaries is a practice where employers provide their workforce with a portion of their salary before their scheduled payday, usually to help employees cover unexpected expenses. With the tough economic times, businesses are feeling more sympathetic to employees requesting advances, however, advancing salaries has several drawbacks for employers, one being the cost of resources spent on delivering those advances. 

Comparing business costs 

Consider all the functions that need to be involved in providing an advance; management, HR, payroll. The cost of the manhours spent on advancing salaries will add up. Additionally, if an employee quits before the end of the month, the company may be left with a financial loss they may be unable to recover.  

Since the company will be paying employees before the end of the month payday, the business may see cashflow issues if they have to borrow money to cover these costs, which can result in additional interest charges. 

With the average cost of recruiting coming in at £5,000 in 2023, business may also look at ways to save in this area. Companies offering on-demand pay see a stickier, more loyal workforce as employees feel more supported by their employer. 

We’ve covered the business costs that can be saved by offering on demand pay to your employees, but you also need to consider the expense of offering such a benefit. The price of the software will usually be determined by how many employees you have, and how much you support you want to offer them. The costs are often calculated on a per employee, per month basis. Read our blog on cost comparisons. 

Conclusion 

In conclusion, both advances and on-demand pay come at a cost to business, but dependent on how large your business is, on-demand pay could make more business sense than advancing salaries for several reasons. With companies wanting to support their workforce through tough economic times by providing the cash they may need, on-demand pay can reduce the costs and resources of doing this manually whilst supporting their employee's financial wellness and reducing stress for both parties.