Show Me the Money: Earned Wage Access Explained

78% of Americans live paycheck to paycheck (source: Forbes)

Unexpected expenses can cause a lot of stress—and workers are not left with many options. Too many stories of predatory lending involve payday loans with steep interest rates that drag borrowers into debt.

Earned wage access (EWA) gives employees the choice to claim some of their income before the end of the pay period. Just like it sounds, earned wage access gives employees access to the funds they’ve already earned. 

Earned Wage Access is NOT the same as payday loans or paycheck advances. EWA does not require repayment because it is money employees have already earned. On-demand pay and daily pay are similar programs, and the terms can be used interchangeably with EWA.

Why employees want (and need) EWA

Many hourly workers would prefer to be paid more frequently than once or twice a month. EWA gives workers access to funds without completely disrupting the payroll cycle. Once you’ve experienced EWA, going back to a fixed payroll schedule feels like giving your employer a series of interest-free loans.

Emergency expenses

Everyone has heard about the importance of setting aside a rainy day fund. EWA can help workers cover something like a medical bill or car repair without waiting for their next pay period.

Unfortunately, 51% of Americans would have to cut spending or borrow to pay a sudden $1,000 expense (source: Survey of Household Economics and Decisionmaking (SHED)

Loss of income

Even when your staff are doing well in their careers, they can still have financial insecurity because of others in their household. It’s stressful when a spouse or roommate has a serious injury or loses their job. Temporary injuries and isolating because of COVID can both affect income in the short term without reducing expenses.

Everyday payments

How often do you swipe your credit card or pay a bill online? Your workers have countless personal expenses and bills that don’t align with your regular payroll schedule. Younger workers may joke about empty bank accounts and eating ramen at the end of each pay period, but financial insecurity isn’t amusing for parents who need to buy groceries.

Overall financial strain

Financial insecurity causes anxiety and unnecessary suffering. Without EWA, workers may need to turn to predatory lenders, which often adds to the problem of debt. Some people can borrow money from family members or friends, but that can be embarrassing and even endanger those relationships.

Advantages of Earned Wage Access

How do you know which payroll frequency is best for your company? There’s no one-size-fits all solution, and many companies offer different payroll options for different categories of workers. 

Compared to the other options like monthly and weekly pay, EWA has distinct advantages.

Attract talent

In a competitive hiring market, you can’t always offer higher pay than the competition. EWA is a practical benefit that can help you attract new applicants for hourly jobs. Once workers experience the convenience of EWA, they may be reluctant to take a job with more conventional payroll.

Reduce turnover

Your own workers will appreciate having the freedom to claim some of their money before payday. Leaving your company could mean giving up a key benefit. 

Surveying retail companies with EWA programs, 98% of those companies believed EWA has a positive impact on employee retention (source: Hanover Research Study)

Improve employee financial wellness 

Workers can’t focus on their job when they’re worried about missing rent payments. EWA helps your employees avoid tripping over the smaller financial hurdles between pay periods. This benefit is one of several ways to support the mental health of employees.

Improve employee engagement and satisfaction

Boost employee engagement by paying attention to their well-being. Demonstrate your company’s commitment to workers by investing in practical benefits like EWA. The Netchex EWA solution is designed to maximize benefits for both employees and employers.

Maintain payroll integrity

When your payroll provider supports EWA, you don’t have to worry about unnecessary complications. Automate the calculations for withholdings, and you won’t need separate payroll cycles or paper statements. Integrated HR software allows employees to choose from a wider range of options without increasing your administrative burden.

What to Look for in an Earned Wage Access Provider

You’ll need reliable HR software to offer EWA. Manually cutting checks on-demand would be an accountant’s nightmare. When you’re looking for an EWA provider, check their credentials in these areas:

Vendor’s experience with compliance and regulatory environment

A few states have considered laws to regulate EWA programs. In 2020, the Bureau of Consumer Financial Protection published an advisory opinion that EWA should not be considered “credit” as covered by Regulation Z. There’s still some disagreement about how EWA affects compliance issues, so you’ll want a provider that’s watching and ready for changes in your area.

Experience dealing with companies of your size/industry

Different industries have their own regulations and quirks. Netchex serves a wide range of industries, and so we understand the needs and priorities of workers in different fields. If you find an HR software provider that hasn’t served companies as big as yours, then you might discover scalability problems in their system.

Improve the overall employee experience

HR software providers should offer convenient tools like mobile-friendly user portals. Features like payroll integration save time for HR staff, but the biggest benefits should be employee-facing. Programs should be easy to navigate without tedious or confusing complications.

Security and privacy standards

You have an obligation to protect sensitive employee data, especially when it comes to bank accounts and payment transfers. Check out the track record and cyber readiness of EWA providers. Learn how to find a safe and secure payroll company like Netchex.

Discover how Netchex can help your organization offer specialized perks, such as earned wage access: