Earned Wage Access

Choosing responsible earned wage access is more important than ever

Financially vulnerable employees need benefits that are helpful, not harmful.
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As the nation experiences fits and starts with “reopening,” some of the nation’s largest employers are beginning to re-hire cautiously. The people those employers are hiring are moving cautiously as well, still dealing with lost income and upended home lives. Employers who are hiring right now have an opportunity to help their workers — and to stand out from other companies trying to hire the same people. Given the precarious financial state many new employees are in, it’s more important than ever for employers to offer benefits that help employees rebuild their financial lives.

Many new hires are in critical financial situations

The people you’re bringing onboard right now are starting new jobs as they continue to endure the biggest economic crisis most of us have ever seen. Among Americans with lower incomes, 36% reported household income loss due to the pandemic. Twenty-eight percent of middle-income households said they’d been affected, and 23% of high earners reported losses. Less than a quarter of low earners (23%) said they had enough emergency funds to last three months

These are people who were already struggling, and now that the stakes are so much higher, waiting every two weeks for their paychecks isn’t just an inconvenience — it’s a hazard. This is why many employers are starting to bring on earned wage access (EWA) solutions to help workers. It gives financially vulnerable employees a way to access money they’ve already earned but have yet to be paid because of the way payroll schedules work. It helps them avoid predatory financial “solutions” like overdraft fees, credit cards, and payday lenders.

But before you bring an EWA solution onboard for your employees, it’s important to understand all the facts. Not all EWA solutions help employees in the long run, and some even have the potential to make workers’ financial troubles worse.

Financially vulnerable workers need fewer fees, not more

Earned wage access can be a great asset for workers — but not all of these products are created equal. The differences in pricing structure, feature set, and even the provider’s business model can have significant implications for your employees. At a time when new employees may be coming off a long stretch of unemployment, with overdue bills and new debt, employers should look carefully at the types of fees new hires might pay for EWA.

Earned wage access cost models can be broken down into three main types: membership, transaction, and pay card. With transaction model vendors, employees pay a fee each time they access their pay. Pay card models often call themselves free, but in reality there are high fees if employees want to use their own banking cards or access the cash via ATMs. In contrast, membership models are significantly less complex: Employees pay a flat fee each month to access wages via ACH or cash pick-up. The membership fee covers all delivery options, no matter how often employees use EWA.

The upshot of these options is that transaction- and pay card-based EWA models are significantly more expensive for employees: For a worker who uses EWA about once a week (which is the industry average), a transaction model vendor would charge $14.95 in fees for the month, and a pay card model provider could take as much as $24.95. An employee using a membership model EWA product would only pay the flat rate for the entire month. In Even’s case, that would be $8.

Benefits should be helpful, not harmful

Pricing models like the ones described above are closely linked to a provider’s business goals and motivations. With transaction and pay card models, the more employees use EWA, the more money the provider makes. They’re directly incentivized to keep employees using EWA, which ends up costing your workers more money.

Membership models are different because they don’t incentivize employees to use EWA more frequently. Instead, they provide tools and support — ways to budget and save money in addition to EWA — that help your employees build stronger financial lives. After all, EWA is an incredibly important safety net that helps employees sidestep disastrous alternatives. It should be a part of every financial wellness strategy, but in and of itself it’s not a long-term solution.

That’s why the goal of any financial wellness product should be to include EWA and help employees gain financial confidence and stability that ultimately reduces their reliance on EWA in the long run. Of course to make money and stay in business, this type of provider needs to provide enough value for employees to want to keep paying for the app. In other words, a membership model provider’s business must be aligned with employees’ best interests — not just what makes the most money.

Help your business by helping employees

At a time when your company may be hiring high numbers of new employees, many of whom are struggling to make ends meet, the urge to offer financial assistance isn’t just commendable, or a recruiting advantage — it’s good business. As they struggle to rebuild their financial lives after COVID-19, employees need benefits that will help them build savings and achieve financial wellness. While earned wage access is an important part of this, because it helps workers avoid expensive credit and predatory payday loans, EWA can ultimately hold employees back if employers don’t select the right one.

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