Workers can now choose when they get paid: Pros and cons of on-demand pay

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Published on July 10, 2023 | 4 min read

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As technology evolves, so too does the way we approach everyday finances. One such innovation from financial technology is the ability for workers to access their earned wages according to their schedule, sometimes called on-demand pay.

On-demand pay could be a greatly beneficial service to workers who have a need for more flexible pay, but it comes with some potential downsides. Here are the pros and cons.

What is on-demand pay?

The premise of on-demand pay is that workers can access some or all of their earned wages almost instantly after they clock out from a shift, simply through a few taps in an app.

Different on-demand payment platforms have different limits on access to your pay. EarnIn, for example, caps the amount you can get early at $100 per day and $750 per pay period — but, because it verifies your earnings through a paycheck first, there are no limits on who can use the service, regardless of employer. Meanwhile, DailyPay lets most users transfer 100 percent of their earned pay (up to $1,000) every day, but it’s only accessible to workers of employers that partner with the fintech.

Typically, workers have access to an on-demand pay service through a mobile app provided by the fintech platform. In the app, they can view their earned wages, request transfers to their bank account and see their financial activity. Once a shift is completed, the app updates with the accumulated earnings, which can be transferred out the same day, the next day or within the week, depending on the platform.

On-demand pay can be useful for covering urgent financial needs, like an unexpected medical expense or a car repair. It might also be a practical feature for part-time or gig workers, whose pay is variable — on-demand pay would allow these workers to access funds more easily during periods when they’ve earned less income.

Pros and cons of on-demand pay

Pros

Greater access to funds when needed: Rather than having to put off an expense until the next payday, workers can access their earnings as needed. This can be particularly beneficial for covering emergencies, especially given that most Americans are uncomfortable with their level of emergency savings.
Enhanced financial management: Having real-time access to your earnings opens the door for new budgeting opportunities. Instead of planning out how to allocate funds for a week or more, workers can manage their finances day-by-day. For example, you could choose to put all of your earnings for one day each week into a savings account.
Reduced dependency on credit and overdrafts: Relying on credit or overdrafts to make ends meet between paydays is a bad habit that can put you in debt and incur fees or interest charges. By accessing wages more frequently, you have another option for paying for important expenses that doesn’t come with the extra costs.
Increased job satisfaction: Knowing that your efforts translate into immediate rewards can make you feel more motivated about your job and, in turn, make you more productive.

Cons

Potential for impulse spending: While on-demand pay gives workers more financial flexibility, it also may tempt them to spend more hastily and more frequently. In the long-term, that could lead to greater spending overall and less savings.
Complicated budgeting: Being paid more frequently than usual could make it more complicated to account for things like monthly bills, subscriptions and debt payments. Instead of having the funds to cover these costs deposited all at once, they’re spread out over time, and it could be easy to lose track of monthly expenses.
Potential fees: Certain services that offer on-demand pay may charge a fee or request users to make voluntary tips. Make sure to carefully review the terms and conditions of such apps to understand any associated costs.
Limited employer participation: Availability for some on-demand pay services may be limited to workers whose employers have partnered with the fintech company. Check with your employer to verify whether the payment option is supported by your workplace.

Popular on-demand pay providers

DailyPay

Frequency of payout: Up to five times daily
Maximum withdrawal amount: $1,000 per day
Who can use it: Employees of participating companies with at least 500 employees
Cost: Flat fee for each transfer, unless you open a reloadable prepaid card

EarnIn

Frequency of payout: Up to daily
Maximum withdrawal amount: $100 per day; $750 per pay period
Who can use it: Anyone
Cost: Free with optional tips; up to $3.99 fee for instant transfers

Even Instapay

Frequency of payout: Varies by employer
Maximum withdrawal amount: Up to 50 percent of earnings at that point in the pay period
Who can use it: Employees of participating companies
Cost: Subscription fee for accessing the Instapay feature; free for Walmart employees

FlexWage

Frequency of payout: As needed
Maximum withdrawal amount: Varies by employer
Who can use it: Employees of participating companies
Cost: Fee varies by employer

Payactiv

Frequency of payout: As needed
Maximum withdrawal amount: $500 per transfer; 50 percent of net earnings per pay period
Who can use it: Employees of participating companies
Cost: Free; $2.99 for same-day transfers

Bottom line

While the ability to receive wages after each shift provides numerous advantages and can reduce the costs of taking out credit, it’s important to carefully consider the pros and cons before embracing this flexible payment option. Consider whether you’re susceptible to impulse spending, and make sure to read the terms of service to see if you’re eligible to use it and to check for any associated costs.