What is Earned Wage Access and How Does it Work?
Did you know that companies are trying to attract new talent by letting employees access their already-earned wages before payday arrives?
This on-demand pay solution is gaining traction as both a financial lifeline for workers and a competitive advantage for employers. Learn exactly what earned wage access is, how the process works behind the scenes, and the key benefits and risks that leaders should consider.
What is Earned Wage Access?
Earned wage access (EWA) is a financial service that lets employees access their accrued wages before their next scheduled payday. Instead of waiting for the traditional bi-weekly or monthly pay cycle, people can withdraw money they've already earned through completed work hours, getting immediate access to funds when expenses crop up.
This technology integrates directly with your payroll system to calculate how much an employee has earned. It's particularly valuable for hourly workers who might otherwise turn to expensive payday loans or credit cards to cover emergency costs.
How Does Earned Wage Access Work?
Earned wage access operates through automated platforms that connect to your existing payroll software. Here's how it works step-by-step:
- Employees complete their regular work shifts while the system tracks their hours in real-time.
- The platform automatically calculates earned wages after accounting for tax deductions and other withholdings.
- Workers log into a mobile app or website to request a portion of their earned wages.
- The requested amount gets transferred to the employee's bank account, prepaid card, or digital wallet.
- On regular payday, employees receive their remaining wages minus what they've already accessed.
Example: Sarah earns $75/hour and has completed 20 hours by Wednesday of a two-week pay period. She's earned $1,500 gross wages so far. Through earned wage access, she could request a portion of that $300 (after tax calculations) to cover an unexpected car repair, then receive the remainder on her normal payday.
Are There Other Related EWA Models or Terms?
The earned wage access space includes several related terms and models you should understand. While they're often used interchangeably, each has slight variations in how the service operates or is branded.
- Instant pay provides real-time access to earned wages, typically processed within minutes of the request.
- Paycards are prepaid debit cards where earned wages are automatically loaded, giving employees immediate access to funds.
- Pay on demand is another term for earned wage access that emphasizes the employee's control over when they receive their pay.
- Flexible pay refers to a broader concept that includes earned wage access along with other flexible compensation arrangements.
- Salary on demand refers to an earned wage access program specifically designed for salaried employees rather than hourly workers.
Benefits of Earned Wage Access
EWA offers many benefits, most of which relate to the added flexibility that employees enjoy from the improved access to funds. Here are some examples:
- Improved financial flexibility for workers: EWA provides an ethical alternative to payday loans, which typically charge high interest rates and may negatively affect credit scores. You can offer access to already-earned wages with minimal or no handling fees.
- Enhanced employee retention and attraction: Companies like Walmart and McDonald's have adopted EWA as an employee benefit. According to Gartner, 20% of all hourly staff in the US are expected to use this payment method by 2023.
- Competitive advantage in hiring: Offering earned wage access helps employers stand out in tight labor markets by providing a valuable financial benefit that addresses real worker needs.
- Reduced financial stress: Most employees use EWA primarily to pay bills on time and cover unexpected expenses, helping them avoid fees and financial penalties. This improves their financial health and helps them avoid stress.
- Better than alternatives: Studies indicate that workers prefer EWA over other emergency funding options like credit cards or borrowing from family. It also helps them avoid predatory lenders and overdraft fees.
Potential Risks of Earned Wage Access
That said, there are some challenges that you’ll need to consider before offering EWA. It’s a great idea, but comes with added complexity for businesses that are fresh off the boat:
- Increased payroll complexity: Implementing this requires integration with third-party earned wage access products and can complicate payroll compliance, especially across different state regulations.
- Employee access fees: Some providers charge workers a flat fee or percentage for each transaction, which can add up over time depending on usage patterns.
- Cash flow disruption: Deviating from regular payroll cycles can impact your company's predictable cash flow patterns and financial planning.
- Risk of employee overspending: Workers might withdraw too much too early, potentially leaving them short on funds for necessary expenses when regular payday arrives.
- Tax calculation challenges: Providers must carefully limit access amounts to ensure employees don't accidentally request more than their net pay after taxes and deductions.
Why Would Employees Want Their Earnings Earlier?
There are plenty of reasons why someone might need access to their earnings before payday. Here are some of the most common reasons:
- Covering unexpected expenses like car repairs, medical bills, or home emergencies.
- Managing sudden loss of household income or supporting family members in a pinch.
- Avoiding high-interest short-term payday loans, credit card debt, or borrowing from friends and family.
- Paying bills on time to prevent late fees or service shutoffs.
- Handling day-to-day cash flow gaps, especially for those living paycheck to paycheck.
- Reducing financial stress and improving overall peace of mind.
- Gaining more control over personal budgeting and spending habits.
Which Payroll Providers Offer Earned Wage Access?
- DailyPay: DailyPay is a pioneer in the EWA product space, offering real-time access to earned wages and seamless integration with many payroll systems. Employees can transfer funds instantly and track their earnings daily, making it a popular choice for large employers.
- Paychex: Paychex provides an EWA solution as part of its payroll suite, allowing employees to access a portion of their earned wages before payday. The platform is known for its user-friendly interface and strong compliance features.
- ADP: ADP’s Wisely platform includes on-demand pay capabilities, letting employees get paid as soon as they earn their wages. It’s widely used by enterprises and integrates with ADP’s broader payroll and HR tools.
- UKG (Ultimate Kronos Group): UKG offers EWA through its payroll services, giving employees the flexibility to access their pay early and helping employers improve retention and satisfaction.
- Paycor: Paycor partners with EWA service providers to deliver earned wage access as part of its payroll offerings, focusing on ease of use and compliance with regulations.
There are many other payroll services in the HR world that offer EWA features, aside from a healthy number of standalone earned wage access providers. Shop around for an earned wage access service that complies with your local and federal regulations while offering the most hassle-free access system for employees.
How To Offer Earned Wage Access
- Partner with a payroll provider that offers EWA services: Start by choosing a payroll platform or third-party provider that supports early wage access. Look for one that integrates smoothly with your existing payroll system.
- Allow eligible employees to enroll: Once set up, invite your employees to enroll in the EWA program, usually through an app or online portal.
- The provider will gradually release funds that are accessible to employees: As employees work and earn wages, the provider tracks their earnings in real time and makes a portion available for early withdrawal.
- Employees can access the funds instantly via their EWA account: Employees log in, view their available balance, and transfer funds to their bank account through direct deposit, paycard, or digital wallet — often within minutes on business days.
- Payroll reconciliation takes place on the next payroll run: When payday arrives, the payroll system deducts any early withdrawals and applicable fees from the employee’s paycheck, ensuring everything balances out.
Frequently Asked Questions about EWA
Who funds the cash for an EWA program?
Typically, EWA providers advance the funds to employees and then recoups the amount from the employer on the next payroll run. This means employers don’t need to front the cash themselves, making the process smooth and low-risk for businesses.
What are the typical transaction fees in the EWA model and who pays them?
Transaction fees can vary. Some providers charge a flat fee (often $1–$3 per transaction), while others may charge a small percentage. Usually, employees pay these fees, but some employers choose to cover them as a benefit.
How much can an employee withdraw in advance in an EWA model?
Most programs let employees access a set percentage of their earned income — often up to 50% to 70% — before payday. The exact amount depends on the provider’s stipulations and the employer’s policy.
How are taxes deducted from on-demand payments?
Taxes and other deductions are calculated as usual during the regular payroll process. EWA providers ensure that employees can only withdraw net earnings, so there’s no risk of overdrawing or tax issues.
How do EWA programs impact payroll compliance?
EWA can add complexity to payroll compliance, especially in states with strict wage and hour laws. It’s important to work with a provider that understands local regulations and can help ensure compliance.
What’s the difference between EWA and a paycheck advance?
EWA gives employees access to wages they’ve already earned, while a paycheck advance is essentially a loan against future earnings. EWA doesn’t create debt or require repayment, making it a safer option for employees and small businesses.
What if my payroll provider doesn’t offer EWA services?
If your current provider doesn’t support EWA, you can partner with a standalone EWA provider that integrates with your payroll system or consider switching to a payroll platform that includes EWA as a feature.
Is Earned Wage Access Right For You?
To decide if earned wage access is a good fit for your organization, ask yourself a few key questions:
- Do your employees frequently request payroll advances or struggle with financial stress?
- Are you looking for ways to boost retention and attract new talent?
- Is your payroll system compatible with EWA providers?
- Are you prepared to manage the compliance and administrative aspects of offering this benefit?
If you answered yes to any of these, EWA could be a smart move. It’s a practical way to show you care about your team’s financial wellbeing and can make your workplace more attractive, supportive, and employee-friendly.
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