Earned Wage Access (EWA)

One type of financial wellness benefit that is popular with employees is earned wage access (EWA). These products allow employees to receive certain amounts of accrued wages before their regularly scheduled payday. The funds are recouped by the EWA provider via payroll deductions or bank account debits on the subsequent payday.

Today, technological advances to payroll management systems have created the capability to eliminate the pay period approach, meaning the technology would allow workers to receive their earned net pay at any time, or on-demand, as work shifts are completed.

Considerations about EWA benefits include: (1) the level of involvement by employers and payroll operations, (2) the methods used by EWA providers, and (3) the potential legal exposure for employers implementing an EWA benefit.

EWA Considerations

Funding

How will these between-cycle payments be funded? Will the employer need to set aside amounts between paydays to cover the amounts requested or will the service provider cover those amounts until payday?

Employer costs and liabilities

Some providers may charge fees to the employer for administering the EWA program or to cover the cost of a complex or customized integration processes. Sharing of payroll data will require discrete integration between the employer’s payroll system and the EWA provider’s system. Determine who may be liable when amounts are paid in error.

Percentage of available pay

Some providers approximate full net pay from existing individual elections and deductions. Others cap access at a certain percentage of gross pay to approximate net pay. An employer also may work with a provider to place a cap on the percentage and determine the frequency of access.

Transaction fees and costs

Most EWA service providers require employees to pay fees, often for near-instant payments, or payments to non-preferred accounts or cards. The charges can be in the form of subscription-like fees, per-transaction fees, or suggested “tips.” Employers can choose to absorb these costs for employees (but note such amounts could be considered taxable to those accessing the pay before payday). Often fees can be avoided when the employee chooses a next-day payment rather than instant, and/or chooses to fund a preferred account or card associated with the EWA provider.

Account options and flexibility

Related to reducing costs associated with the EWA transactions, employees generally may direct their EWA payments to their existing bank accounts but may be offered other options where their deposit can be made. These include new bank accounts, prepaid debit cards, payroll cards, digital platforms, cash applications on a mobile device, and cash pickup at retail outlets. EWA providers may offer a payroll card or a traditional bank account as a part of their solution on where funds can be sent. Some providers may require use of their payroll cards and financial account services.

Employee and employer support

EWA mobile apps may alert employees when pay is available, how much is available, and when funds have been deposited. An EWA app should be easy for employees to understand and use. Some EWA providers offer financial wellness solutions offered to employees by the employer, such as retirement plans and budget support. For employers, determine how much support the provider will offer for promoting and enhancing the user experience with employees, and availability to troubleshoot when needed.

Compliance

Issues to consider include: determining tax liability of the payments, legal deductions from pay, and whether certain types of arrangements are considered loans.