Understanding Earned Wage Access: A Guide for Employers
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Understanding Earned Wage Access: A Guide for Employers
Unexpected expenses can hit at any time. And, with many employees feeling the squeeze of the ongoing cost-of-living crisis, they can be particularly devastating if they come up weeks before payday.
No employer likes to think of their employees struggling financially. And short-term solutions like payday loans, credit cards and expensive overdrafts only make things worse.
What if there was a way to give your employees more control over their finances and help cushion the blow of those extra-expensive months? Read on for our full guide to earned wage access.
What is earned wage access?
Earned wage access (EWA) is a financial perk that allows employees to access part of the wages they’ve already earned before their next payday. It goes by a few names, including on-demand pay and instant pay. In the UK, this sort of arrangement is sometimes called an ‘employee salary advance scheme’ (ESAS).
EWA is most commonly offered to low-wage or hourly workers, who might have more difficulty meeting unexpected expenses that come up between paydays. By allowing them to access part of their next pay package ahead of time, employers can give their employees more control over their money and help them avoid anxiety caused by financial worries.
But there’s also a dark side to EWA. When it’s used too regularly, it can quickly become an unsustainable habit. And the fees charged by EWA providers can add up too — leading to even more financial issues.
How does EWA work?
Most employers that offer EWA do so through an external provider. These providers usually operate through an app or online portal, which sits on top of the company’s payroll system and connects with the employee’s bank account.
Typically, employees have to pay a small fee for each early withdrawal, and there are usually limits on how much of their pay they can access ahead of time. For example, UK supermarket Tesco introduced a scheme in 2022 that allows employees to access up to 25% of their contractual pay early, for a flat fee of £1.49.
Earned wage access vs. Payday loans
Payday loans and EWA are both ways for employees to access extra cash before their next payday — but they’re very different arrangements.
A payday loan is a short-term, high-interest loan that’s typically repayable on your next payday. They’re normally granted for small amounts of up to about £500/€500. But because of the high cost of taking out these loans, they’re often seen as predatory.
Many employers see EWA as a way of helping employees avoid solutions like payday loans, credit cards and overdrafts, which can worsen financial problems over time.
The pros and cons of EWA for employers and employees
Earned wage access could be a valuable benefit to offer to your employees — but there are some downsides to be aware of too. Let’s dive into the pros and cons of EWA for both employers and employees.
Advantages of earned wage access
Earned wage access gives employees more control over their earnings, and acts as an emergency fund for dealing with unexpected expenses.
Although employees typically have to pay a small fee for accessing their wages early, this is usually only a few pounds or euros — much less than the interest rate charged on a payday loan. And, unlike loans and credit cards, EWA doesn’t come with any credit score or income requirements.
For employers, EWA can be a valuable perk that can help to attract and retain talent. According to data from payroll provider ADP, 76% of employees agree that it’s important for their employer to offer EWA. And of those employers who do offer it, 93% agree that it helps with employee retention.
There’s even some evidence that EWA can have an impact on productivity, employee morale and absenteeism. In a 2020 survey by PwC, 58% of employees said they were stressed about their financial situation. And 50% of those employees admitted to worrying about it at work. It’s only logical that anything you can do to alleviate financial stress will lead to more engaged, more productive employees.
Disadvantages of earned wage access
For employees, the biggest problem with using EWA is that it means their next paycheck will be smaller. This can lead to reliance on EWA, as employees find they need to access their pay early every month just to meet their basic expenses.
Over time, this can worsen debt and other financial problems. Plus, the fees that EWA providers charge for each withdrawal can add up — especially if an employee is making withdrawals several times a month.
Naturally, this is a problem for employers too. As we’ve mentioned, financial worries can be a big distraction. And this can lead to lower productivity, morale and employee engagement.
Employers might also struggle to deal with the increased administrative burden of giving their employees access to their wages ahead of time. For smaller companies, it could even cause problems with cash flow.
Responsible EWA: 3 tips for getting it right
Is it possible to offer employees early access to their earned wages without worsening their long-term financial position? In short, yes — but it’s not something to rush into without careful thought.
Here are our tips for doing EWA the right way:
1. Make it part of a wider financial wellbeing programme
Employers shouldn't just set up an EWA scheme and expect it to solve their employees’ financial worries. As we’ve discussed, these schemes could actually worsen their financial situations over time.
Instead, you should think of EWA as just one part of your financial wellbeing strategy. It should also include providing employee benefits that help lower their living costs, and offering financial education to help employees better understand and manage their finances.
It’s also a good idea to support your employees by signposting free resources to help them get out of debt, like those provided by Citizens Advice or Stepchange (in the UK).
2. Choose your provider carefully
EWA providers all have different ways of operating, and it’s important to choose one that will work for you and your team. For example, one notable difference is the way that these providers charge for their services.
The two most common pricing models are employer-sponsored, and transaction-based. With a transaction-based EWA, the employee pays a small fee each time they access their earned wages early. Some providers charge a percentage fee, while others charge the same flat rate for each transaction. It’s important to check which option your provider uses, as this can make a big difference to employees over time.
An employer-sponsored EWA, on the other hand, doesn’t charge employees to access their earned wages. Instead, the provider charges the employer a fee each month. Opting for a solution like this allows you to give your employees a financial cushion to fall back on, without subjecting them to fees that could make their situation worse in the long run.
3. Ensure your salaries are fair
Earned wage access isn’t a substitute for fair pay. And if your employees are regularly struggling to make their salary stretch until the end of the month, you could have bigger problems at play.
As a baseline, responsible companies should always pay all employees at least the national living wage (which is usually higher than the legal minimum wage). If you live in an area where the cost of living is particularly high, you should also give thought to how this impacts your employees and their families.
If you want to go one step further, using tools like salary benchmarking can help you to ensure the salaries you’re paying are fair and competitive. Tools like Figures allow you to find out what other companies in your industry are paying their employees, so you can make sure your salaries are in line with theirs.
Set fair, competitive salaries with Figures
Figures’ compensation management tool gives you access to the most reliable, real-time compensation data on the market. Put simply, Figures allows you to ensure that every single one of your employees is paid the rate they deserve according to their role, level, location and more. That means you can avoid the need for risky sticking-plaster solutions like EWA.
Want to learn more about how Figures could help transform your compensation strategy? Book your free demo to get started.