May 18, 2024

On-Demand Pay is Really a Reflection of the Past

3 min read

One of the hottest things in payroll right now is on-demand pay. Employers can now offer their workers all or a portion of their pay in the days immediately following completed shifts by partnering with an on-demand pay provider who makes pay available through a mobile app. Employees love it for obvious reasons.

It is interesting to note that while many people consider on-demand pay something new, it is actually not. On-demand pay is really a reflection of the past. It brings back, at least to a certain degree, the way people used to be paid before organized payroll was ever a thing.

Industrialization and Payroll Processing

Payroll, in its purest form, is defined as an accounting system for keeping track of when and how much employees are paid. Such record-keeping dates back to some of the earliest days of human civilization. For example, archaeologists have found cuneiform records detailing daily rations paid to workers. Those records constitute a form of payroll accounting.

Way back when, workers were paid at the end of each day. If they were paid in rations, they might receive a certain amount of grain and meat. Alcohol was rationed in some cultures as well. The main point here is that pay was issued at the end of the shift. That is why we have that old idiom that mentions ‘an honest day’s pay for an honest day’s work’.

Modern payroll did not come into play until the industrial age. Industrialization made it more important for growing employers to utilize some sort of bookkeeping method to keep track of employee pay. This is about the same time that the shift toward monetary payments really began. Bartering quickly declined in favor of paying workers exclusively in cash.

Making Payroll More Convenient

As industrialization took hold and the number of people being employed – as opposed to owning their own farms or running small businesses – increased, it became evident that daily pay was impractical. Paying employees at the end of every shift meant a lot of paperwork for employers. Thus, weekly pay was birthed.

Introducing weekly pay was a way to make payroll processing more convenient for employers. It was also a way to manage cash flow. Because payroll processing took time, employers were able to say to their workers that they needed to wait a few days after the end of the work week to get paid. This essentially gave employers more time to utilize the cash in their bank accounts.

That convenience was taken one step further when payroll outsourcing took off in the 1980s. Outsourcing providers convinced employers that biweekly and semimonthly pay was even more convenient. Paying employees only twice per month reduced the amount of work necessary to process payroll. Subsequent increases in efficiency and cost-effectiveness were realized.

A Return to the Old Mentality

When you understand the history of payroll and how employees get paid, it is easy to see how on-demand pay is really just a return to the old mentality. It is a mentality that says employees deserve access to their wages as quickly as possible. They shouldn’t have to wait for 2 to 3 weeks after a shift is completed to receive money they have earned.

Setting up on-demand pay is fairly easy and cost-effective, according to Dallas-based BenefitMall. The payment provider does most of the heavy lifting, so offering on-demand pay requires very little work from employers. That makes on-demand pay something worth looking into as companies investigate new employee benefits that they can use to retain current workers and recruit new ones.