Earned wage access (EWA), as the name implies, means giving access to wages earned—in this case, before they would typically be paid out on payday. In other words, it is a way to shorten the gap between the time an employee earns his or her money and the time it is actually in his or her possession.
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There are many reasons employers are looking for ways to implement EWA:
- It can ease employee stress over waiting until payday. Even this simple act can help improve overall employee wellness levels. Having more control over finances can relieve a lot of problems.
- Employers can offer this so employees, especially those just starting, don’t have to wait so long for their next paycheck.
- It may keep some employees from utilizing more costly options like payday loans, helping them take better financial steps overall.
- It may be a way to keep employees from having to pay high fees (like late fees or overdraft fees) when unexpected expenses come up or when expense due dates don’t align well with pay dates.
- If the program’s fees are passed along to employees, this benefit does not cost much for employers to implement.
- Because so many people live paycheck to paycheck, having early access to funds can be a real benefit—so much so that it may even mean lower turnover. This is a big benefit in a labor market where employers are struggling with recruitment and retention.
While there are clear advantages, there are several disadvantages to implementing EWA, as well:
- There are administrative costs and other fees involved, which some employers opt to pass onto employees. This can be a point of frustration for employees or an extra expense for employers. (This comes in the form of membership fees and/or transaction fees.)
- The fees involved for employees, while lower than typical payday loans, are still often high in terms of percentage.
- Depending on how the account is managed, there may be major regulatory compliance concerns that need to be addressed and handled appropriately. While this isn’t necessarily a reason not to implement this benefit, it definitely means it needs to be managed carefully to ensure employees are treated fairly and regulations are followed. Be especially careful with any third-party service that wants to charge employees’ bank accounts for the associated fees.
- There is an administrative aspect in terms of getting an employee’s pay stub and all taxes correct every week when the net pay amount could vary due to early partial distributions and fees. The full pay should be accounted for on the pay stub; doing so will help the employer ensure all records kept are correct. This is more complex than it seems due to differing wage advance laws in dozens of states (including some states where this practice may be illegal, depending on how it is set up).
If this is a benefit you’re considering, be sure to think through the pros and cons and evaluate different third-party providers to find one that is compliant with all legal aspects of the system. Communicate all of the details to employees so they understand this is not simply a change in payday—there are fees involved, and usually, the full pay cannot be advanced.
Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.