What Is Earned Wage Access?

October 23, 2023 Personal Loans

Key Takeaways

Earned Wage Access (EWA) can provide excellent financial flexibility and stability to employees. Here are the main benefits of EWA:

  • Better terms than traditional loans, credit cards, and cash advances
  • Helps employees better deal with unexpected expenses
  • Low to no fees when withdrawing money
  • Can improve employer-employee relationship
  • Increase employee retention, satisfaction, and recruitment

On the other hand, when EWA is offered, it comes with fees, a lack of regulations, and the potential for overreliance. Both employees and employers should carefully consider the pros and cons of EWA to make informed financial choices.

What Is Earned Wage Access?

Earned Wage Access is a company benefit allowing employees to access a portion of their earned income before payday. They are a good alternative to payday loans and credit cards since they come with low or no fees.

Let’s go over the definition of Earned Wage Access, as well as the pros and cons you should know about EWA.

Definition of Earned Wage Access

Earned Wage Access (EWA) is also known as on-demand pay, instant pay, and early wage access. It allows employees to tap into money from their earned income before they receive their paycheck on payday.

Unlike traditional payday loans and other financing methods, you’re not obtaining a loan. There is no interest rate. EWA lets you access your income early for a small fee so you can better deal with unforeseen expenses and emergencies. The amount you receive is automatically deducted from your next paycheck.

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How Earned Wage Access works

Employee eligibility

Employee eligibility depends on your company policies. Companies such as Amazon, Walmart, Uber, and McDonald’s are known for offering EWA to their workers. Here are some common criteria that are considered:

  • Employment status
  • Company payroll system
  • Consent and opt-in
  • No outstanding EWA advances
  • Active worker

Accessing funds

It’s generally quick and easy to withdraw earned wages before payday, so long as the employer offers EWA benefits. To use an EWA service, here are the expected steps:

  1. Work at a company that has an EWA program
  2. Download your employer’s EWA app
  3. Link a bank account or debit card and set up direct deposit
  4. Pay a fee if required

Repayment

The money an employee withdraws through Earned Wage Access is typically automatically deducted from the next paycheck.

Fees and costs

The service used for Earned Wage Access may charge fees for employer partnership and employee access. A fast-funding fee is commonly required when employees want to tap into the money immediately without any delay.

Benefits of Earned Wage Access

Financial flexibility

EWA is an increasingly popular method of assisting employees in managing unforeseen situations and expenses. Having the option of tapping into your paycheck early available to you can make a large difference.

Reduction in financial stress

Many hourly workers in the United States work paycheck to paycheck. If there are bills that need to be paid in the middle of a pay period, individuals may be forced to take out loans or overuse their credit cards. This leads to reduced financial stability, which means more stress.

Earned Wage Access is a valuable way to help employees mitigate the impact of financial hardships and unexpected expenses that arise between pay cycles. Employees can greatly benefit from the increased cash flow access.

No long-term debt

Unlike traditional loans, EWA is based on earned income. You’re tapping into income that you have already earned based on your hours worked prior to the payday. You won’t need to worry about long-term debt. The only hiccup in your finances will be the small fee you may need to pay for accessing your earned wage ahead of time and the deduction from your next paycheck.

Employer benefits

EWA is a valuable company benefit that has the potential for increased employee retention, recruitment, and satisfaction. Many people in the workforce have expressed the sentiment that they prefer companies with Earned Wage Access benefits over those that lack EWA programs.

Since employees tend to have increased workplace performance and productivity when less stressed, Earned Wage Access can be an advantageous benefit to offer workers. Employees will enjoy the morale boost as EWA helps them better handle financial stressors.

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Potential drawbacks and concerns

Even though Earned Wage Access sounds like a fantastic program to enhance modern workforce solutions, there are still drawbacks for both employees and employers. Here are some of the common concerns you might encounter.

Over-reliance

There is always the risk of employees becoming dependent on accessing wages early. Constantly using EWA can lead to a new, unsustainable habit that is more detrimental than it appears at first glance.

While it doesn’t cost as much in fees as taking out a loan, habitually withdrawing money from your upcoming paycheck could impact long-term financial planning. Employees may lose the ability to stick to their monthly budget. If someone over-reliant on EWA benefits ends up losing their job and switching to a company without Earned Wage Access, they may struggle with their financial management.

Fee accumulation

Even though Earned Wage Access doesn’t come with high interest rates or strict loan terms, EWA still typically comes with a small fee. Overuse of EWA can result in a strain on your income due to all the fees that are racking up.

Different EWA apps come with different fee options. Many platforms allow employees to withdraw earned wages for free if they are willing to wait a few business days. Check your employer’s guidelines on Earned Wage Access to see your particular fees and limitations.

Requires employer partnership

Your employer needs to be partnered with an Earned Wage Access platform. Otherwise, you can’t take advantage of the benefit and would need to opt for other financing strategies, such as credit card cash advances or personal loans.

Employers that are still considering the idea of partnering with an Earned Wage Access platform may find the process confusing. It can be challenging to determine which option is best.

Tied to your paycheck

The amount you can advance is limited by how much net income you have made in the pay period so far. You can’t withdraw more than that. This means that if you need to finance a major purchase that exceeds your monthly income or the EWA app limits, you won’t have enough funds.

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Regulatory landscape

One major reason that many companies have not implemented Earned Wage Access yet is that there are compliance concerns in the regulatory landscape of EWA. The Consumer Financial Protection Bureau (CFPB) has expressed interest in implementing regulations for Earned Wage Access, but transparency and consumer protection are not well regulated yet when it comes to EWA.

There are not many federal or state government regulations for Earned Wage Access. California is looking to regulate the earned wage access industry, which would make them the first state in the country to move to regulate the industry. Without government regulation, the EWA industry poses more risks to both employers and employees, as service fees may not be properly explained or capped.

As time passes and more companies adopt EWA programs as employee benefits, we can expect more regulations to be passed in the industry.

Differences between EWA and payday loan regulations

On the other hand, payday loans may have certain regulations. For example, lenders that are licensed by the state of New York can charge up to 25 percent interest, which is higher than non-licensed payday lenders can charge for loans below $25,000.

However, depending on where you reside, payday loans can result in annual percentage rates (APRs) of 400 to 600 percent, which is drastically higher than the typical personal loan interest rate.

How employers can implement Earned Wage Access

Partnering with EWA providers

Employers can partner with platforms and services that have Earned Wage Access partnerships. Here are popular platforms that offer EWA to their partners.

EarnIn: Access up to $100 per day and $750 per pay period. Fund in one to two business days (no fee) or immediately (fast-funding fee).

DailyPay: Access up to 100 percent of your net earned income in one to three business days (no fee) or immediately (fast-funding fee).

Payactiv: Access up to 50 percent of their net daily income on work days for a fee.

Even: Access up to 50 percent of their next paycheck instantly (fast-funding fee) or in one business day (no fee).

It’s important to find a suitable EWA service platform with fees and terms that best align with company goals. Take the time to research the reputation and policies of each EWA and cash advance service before committing to one platform.

Setting limits

It’s a good idea to determine how often employees can use EWA and how much money they can tap into ahead of their payday. Different platforms often come with different limits regarding how much an employee can withdraw from their upcoming paycheck before payday.

Through the EWA app, employers can also restrict the amount of money that employees can withdraw. This can help ensure that employees don’t become overly reliant on the Earned Wage Access service.

Employee education

Like with other benefits offered by the company, it’s important to provide employee education for Earned Wage Access. This ensures employees understand the service before they decide to access their wage early. If an employee goes into EWA without understanding how it works and its implications, they may feel deceived or disgruntled, which can lead to workplace friction.

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Comparison with similar services

Other than Earned Wage Access, there are numerous similar services that can also secure you funds before your payday. Here are the most popular ones to know about.

Payday loans

Payday loans are extremely short-term loans with high interest rates. If you take out a payday loan, you only have two to four weeks to gather funds necessary for repayment. This usually means you will need to pay off the entire loan plus interest immediately after you receive your upcoming paycheck.

If you miss the payment for your payday loan, interest can rapidly accumulate. The debt can become difficult to pay off, resulting in the potential need to consolidate the debt through additional loans.

Because of the terms that are unfavorable to borrowers, it is advisable to avoid payday loans if you have other viable options available to you.

Credit card cash advances

Credit card companies offer cash advances, which essentially act as short-term loans. Credit card holders can withdraw cash against their credit limit so that they can use cash instead of credit for a transaction.

If you take out a cash advance, you can expect to pay a fee that depends on your credit card issuer. Most cash advances are expensive, with high interest rates and cash advance fees.

The advantage of a cash advance is that a credit check is usually not necessary. You can obtain a cash advance by visiting an ATM, using a cash advance check, or going online.

Employee loans

Workers can apply for employee loans from their employers. Similar to a traditional loan, you will be expected to repay the loan, though the repayment installments may be directly deducted from your following paychecks.

An employee loan does not require an Earned Wage Access program. It can be a good way to alleviate financial stress for employees, allowing them to tackle issues such as debt, medical emergencies, and basic living needs.

A potential downside to employee loans is that the employee will need to directly interact and negotiate loan terms with the employer. This could lead to workplace friction as the employee ends up owing money to the employer.

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Other short-term financial solutions

Depending on what you need the money for, merchants and dealerships may offer Buy Now, Pay Later (BNPL) and similar payment plans. When seeking out short-term financial solutions, make sure you thoroughly review the terms, rates, and fees of the solution so you aren’t caught off guard by additional expenses later down the line.

About The Author

Author Avatar

Ru Chen

Content Writer

Ru Chen is a content writer with several years of experience in creating engaging and well-researched articles. She mostly writes about business, digital marketing, and law. In her free time, she can be found watching horror movies and playing board games with her partner in Brooklyn.


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