December 12, 2024

What Is Earned Wage Access, and Is It Right for Your Company?

Many companies aim to create an exceptional employee experience — and one great way to do that is with comprehensive benefits.

But offering benefits gets expensive, and finding ways to keep employees happy without breaking the bank is tough.

We have a solution for you: earned wage access (EWA), a relatively new financial wellness benefit that's catching the attention of HR departments across industries. This innovative approach to payroll empowers employees to tap into their earned wages before payday. It helps employees with daily cash flow and promotes better financial well-being, all without impacting company finances.

So what is EWA, and what would implementing it really mean for your business? Let's dive into the details to determine if this could be the next powerful tool in your employee retention arsenal.

What is earned wage access?

EWA, also known as on-demand or instant pay, is a fresh take on how employees receive their wages. Just as the name suggests, it lets workers access their earned wages before their traditional payday arrives.

The main goal of EWA is to help employees more easily handle financial curveballs. By offering flexible access to earned wages, employees can better manage unexpected expenses without resorting to costly alternatives like payday loans, credit card debt, and overdraft fees. Instead, employees can access their own earnings a few days ahead of schedule, promoting healthier financial habits.

It’s important to understand that early wage access isn't a loan. It simply allows employees to access money they've already earned,with no mandatory fees. This makes EWA a more employee-friendly option for addressing short-term cash needs.

Since EWA providers aren’t extending credit, they don't check an employee's credit score or chase after unpaid advances. Employees are simply accessing money they’ve already earned.

The different earned wage access models

EWA typically operates through one of two models: employer-based or direct-to-consumer (D2C).

In the employer-based model, companies team up with EWA providers, sometimes through their payroll provider, to offer the perk to employees. This is a voluntary benefit that meets employees where they’re at. In fact, 76% of employees mentioned wanting EWA.

The D2C model lets employees access services from EWA providers directly, without requiring any employer involvement. This approach is particularly useful for anyone whose employer doesn't include EWA in their benefits package.

No matter which model is used, EWA providers cap advances at the amount an employee has actually earned up to that time. Some further restrict access to a percentage of the earned wages. This limit empowers employees to make responsible money moves when they need it most without spending their whole paycheck. With more mindful spending and budgeting, EarnIn can fill the gap to help employees take control of their financial wellness.

Pros and cons of earned wage access

Like any financial tool, EWA comes with its own set of advantages and challenges to consider carefully before choosing a provider. Let's take a look:

Pros for employees

EWA offers a slew of advantages for employees:

Fast access. Employees can quickly tap into their earned wages, often within hours. This is particularly useful for unexpected expenses or emergencies.
Timely bill payments. Workers can stay on top of their bills, potentially avoiding late fees and maintaining better financial health.
No credit checks. Unlike traditional loans or credit cards, EWA doesn't require credit checks, making it accessible to a wider range of employees.
Reduces financial stress. By providing a financial safety net, EWA can help ease the anxiety often associated with living paycheck-to-paycheck.
Less reliance on loans. EWA offers an alternative to high-interest payday loans and credit card debt, potentially lessening the cycles of debt.
Overdraft protection. While some EWA providers can cause overdrafts, EarnIn protects employees from negative balances with Balance Shield. If an employee’s account reaches overdraft range, they’ll automatically get $100 from their on-demand pay to protect their balance.

Cons for employees

However, EWA also comes with some potential drawbacks:

Smaller paycheck. Accessing wages early means a reduced paycheck on payday, which can create budgeting challenges.
Potential for habit-building. Regular use of EWA without proper planning could lead to a cycle of relying on future earnings.

Pros for employers

Employers benefit from offering EWA in a few key ways:

Employee satisfaction. By addressing financial stress, EWA can improve employee morale and boost productivity.
Improves retention. EWA is a valuable benefit for retaining talent, especially in industries known for high employee turnover.
Cost-effective. While running payroll can be expensive, EWA is a free benefit employers can offer.

Cons for employers

Implementing EWA isn't without challenges for employers, including:

Integration difficulty. Many EWA solutions require companies to integrate with their payroll and HRIS to track attendance and hours worked. Luckily, a solution like EarnIn requires no integration, meaning you can offer employees this benefit without any additional resources or operational changes.
Disrupted payroll cycles. For providers that are integrated, on-demand pay may require adjustments to established payroll processes and timing.
Compliance complexities. As regulations around EWA continue to evolve, employers need to stay informed to ensure their programs remain compliant.

What to look for in an earned wage access provider

When selecting an EWA provider, consider these key factors:

1. Integration with payroll systems

Choose a provider whose platform meshes smoothly with your existing payroll system. This ensures accurate tracking of wage advances and simplifies deductions, minimizing disruptions to your payroll process.

Better yet, choose a no-integration option like EarnIn for faster implementation, no technical requirements, and none of the risks associated with sharing employee information.

2. Employee experience and ease of use

Opt for a provider that offers a user-friendly app and platform. A straightforward interface encourages employee adoption and reduces the burden on your HR team for support and training.

Some providers, like EarnIn, offer additional benefits to enhance financial wellness like overdraft protection or a "Tip Yourself" feature to encourage good saving habits.

Consider daily access limits, too. EarnIn allows employees to access up to $150 per day and $750 per pay period,¹ but there’s a lot of variation between providers. Evaluate how their limits align with your workforce's needs and company policies.

3. Compliance with regulations

The financial regulatory landscape changes fast, so partner with a provider that stays current with local, state, and federal laws to protect your company from legal issues.

4. Support and customer service

Look for robust customer support. Prompt issue resolution is crucial for both your payroll team and employees accessing their wages.

5. Choose an EWA provider

When it's time to decide on a provider, you have quite a few options. Here are the things to consider when choosing a provider:

Integration Needs: Assess the need for integration with your existing payroll or timekeeping system versus a standalone no-integration solution like EarnIn.
Additional Employee Well-being Benefits: Look for additional benefits and features provided by the platform that promotes employee financial health and overall well-being.
Funding & Cost Structure Determine if the provider funds the EWA or if your company is responsible and understand the fee structure for employees.
Provider Expertise: Ensure the EWA provider has experience working with businesses your size.
User Experience and Support: Evaluate the platform’s ease of use, employee onboarding process, and ongoing support to ensure a seamless experience for your team.

How does EarnIn work?

EarnIn’s no-integration solution makes it easy for employees to access their wages early. Here’s how:

Employees connect their bank account and enter employment information in the app.
Employees can then use the Cash Out tool to transfer up to $150/day and $750/pay³ period to their bank account via direct deposit. If they’d like, they can leave an optional tip⁴.
When payday rolls around, employees will receive their full paycheck as usual. Any earnings accessed are debited from the employee’s bank account.

As an employer, you don’t need to fund the earnings access or make any operational changes to offer this benefit. We handle it all.

Is earned wage access right for your company?

Implementing EWA can transform your approach to employee financial wellness, offering a powerful tool to boost retention, morale, and productivity. It might just be the change your business needs.

Ready to explore how EWA supports your team?

Learn more about EarnIn to boost employee financial wellness.

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.

EarnIn is a financial technology company not a bank. Banking Services are provided by Evolve Bank & Trust, Member FDIC.

¹Balance Shield provides free alerts when your bank account balance drops below the threshold you set in your EarnIn account. You can also enable automatic transfers (up to $100/day -subject to your available earnings- with a limit of $750/pay period), if your bank account balance falls below your set threshold. You choose the speed of these automatic transfers. Standard speed is available at no cost and the transfer typically takes 1-2 business days. Lightning Speed is available for a fee [see LS Fee Table] and the transfer typically takes less than 30 minutes. You will also have the option to set a tip for automatic transfers. Tips are optional and can be $0; however, if you choose to set a tip, it will be applied to each automatic transfer. Whether you tip, how much, and how often you tip does not impact the quality and availability of services. You can cancel the alerts and/or transfers at any time in your EarnIn account settings. See the Cash Out User Agreement for more details. While Balance Shield can help you avoid overdrafts, it does not guarantee protection from third-party fees, and its effectiveness depends on your usage and bank activity.

²EarnIn is a financial technology company, not a bank. Banking services are provided by our bank partners on certain products other than Cash Out. Tip Yourself Account funds and Tip Jars are held with Evolve Bank & Trust, member FDICand FDIC insured up to $250,000. Tip Yourself is a 0% Annual Percentage Yield and $0 monthly fee service deposit account. For more information/details visit Tip Yourself Account Terms. The FDIC provides deposit insurance to protect your money in the event of a bank failure: https://www.fdic.gov/resources/deposit-insurance/

³Access up to $150 per day, up to $750 per pay period. Your actual daily limit (“Daily Max”) is displayed in your EarnIn account. Actual limits are calculated based on your earnings and risk factors. To access the service, you must link the bank account where your paycheck is deposited and provide the debit card number associated with that account.. EarnIn does not charge interest on Cash Outs or mandatory fees for standard transfers, which typically take 1-2 business days. For faster transfers, you can choose the Lightning Speed option and pay a fee to receive your money within 30 minutes. Not available in all states. Restrictions and terms apply—see the LS Fee table and Cash Out User Agreement for details. Tips are optional and do not affect the quality or availability of services.

⁴Tips go to EarnIn. Whether you tip, how much and how often you tip do not impact the quality and availability of services.