Earned Wage Access

Should your company build earned wage access in house?

Should your company build in-house earned wage access? Here are the top 3 things to understand when considering building your own EWA solution for employees.
Two images depicting a path from Point A to point B. One is squiggly and confusing; the other is a clear, straight line.

Many of the country’s largest employers are starting to offer stronger financial benefits to workers, especially as they look to rescaling after COVID-19. Earned wage access, or EWA, is an important element of financial wellness. And it also may seem like a good place to start; established companies with strong payroll and HRIT functions may even be weighing the pros and cons of enlisting a vendor, versus building it in house. However, getting EWA up and running is more complicated than it seems. So complicated in fact that Walmart, the largest and possibly best-resourced employer in the country, chose an outside vendor over building it in house. Here are the three biggest considerations you should keep in mind if your company is considering rolling out an in-house EWA program.

#1 — Burdening your payroll and finance teams

Payroll and finance teams aren’t just two of the most crucial components of a business — they’re also under the most pressure and stress. If you’re part of a payroll team, you’re well acquainted with the responsibility of regular weekly, bi-weekly, or semi-monthly payroll processing, and taking several days just to prepare for a single payday. Your team has to meticulously manage reconciliations, adjustments inclusive of off-cycle payrolls, adjustment checks, terminations, and more.

For payroll teams, the clock never stops ticking and timing is everything, because employees need to get paid on time — plus, federal and state tax agencies are expecting timely tax deposits. If someone was to ask your payroll team to take on earned wage access — depositing a custom portion of an employees’ unpaid wages into a bank account — you would be going through this process hundreds, or even thousands of times per week on an ad-hoc basis.

Companies considering in-house EWA will also need to think about the finance team, who works hard to monitor the dedicated payroll account, a balanced general ledger, and additional reconciliations — and then starts the process all over again for the next payroll cycle.

By doing EWA in house, payroll teams would need to run custom payroll processes hundreds, or even thousands of times per week on an ad-hoc basis.

By taking on EWA, finance teams will be facing a whole new level of workload and stress when it comes to auditing and reconciling the traffic within the payroll bank account. By enlisting a vendor to manage the workload instead, you’ll be creating a seamless and enhanced experience — not just for the employees wanting to use EWA, but also for teams that want to provide that benefit without upending their day-to-day jobs.

#2 — Abiding by laws and regulations

When it comes to the rules and relationships necessary to avoid risk and be successful, providing on-demand pay quickly becomes more complicated than it seems. Beyond support from your payroll and finance teams, operating EWA effectively requires heavy expertise in state and wage hour laws, consumer financial protection laws, tax laws, consumer privacy regulations, and information security best practices. Most employers don’t have people on staff with the necessary level of expertise, or the bandwidth to take these responsibilities on.

Many states restrict employers from engaging in payroll deduction practices, which is exactly what’s required to recoup the wage advances. This means that for employers operating in more than one state, there may be a need to exclude a large portion of your employees from using the service.

This could be perceived as an inconsistent benefit offering, as the availability of EWA will be dependent on the state employees reside in. Employers will want to be in a position where they can offer one benefit package to all employees, and not be limited by state-level regulations. The best way to achieve this is to leverage a third-party EWA provider who has considered all the limitations and requirements, and created solutions to address them. This limits the expertise burden required of the employer, and allows for a consistent service to all employees.

#3 — Managing the overall cost

Any company wanting to build EWA in house should assume they’ll need to scale up the finance and payroll teams, and hire more personnel to handle the legal, compliance, and risk management components. It’s important to consider whether you have headcount and salary budget in place for this.

Aside from additional headcount costs, there’s the liquidity demands associated with funding the earned wage advances themselves. A large company would need to reserve millions of dollars to ensure they can accelerate payments to employees who access their pay early. You’ll also take on additional monetary risk: Advance repayments are not guaranteed. Employee turnover or mistimed ACH collections can result in direct payroll-related losses.

A large company would need to reserve millions of dollars in capital to ensure they can always make good on the promise of allowing employees to access pay early.

Finally, establishing the back-end systems and infrastructure to accurately support thousands of earned wage advance requests and distributions is no small feat. This would require adding significant engineering resourcing to build an app or other mechanism for employees to make the actual request, and any additional tooling needed by payroll to manage multiple payment windows each day.

Enlisting a third-party vendor is the most effective choice

Earned wage access is an important first step to helping employees secure financial wellness. But given its complexity, EWA is a difficult benefit for employers to roll out completely in house. Outside EWA vendors are experts in all the things that make the offering so complex: building a useful product, being compliance and legal experts, reconciliation management, and even providing the capital itself. Choosing a vendor to take this on allows you to provide this service while taking pressure off your existing teams, or needing to hire new ones.

It’s also important to choose a vendor whose entire business focus is providing on-demand pay and financial wellness. Access to earned wages is an integral part of the employee lifecycle, because it gives them more control over their own funds and the frequency with which they get paid. Companies will want to consider a vendor who does this well, instead of providing it as an afterthought in a bundle of unrelated services. This ensures employees are taken care of when it comes to one of the most crucial parts of their lives: their paycheck.