Earned wage access (EWA) can go by lots of names, like early wage access, on-demand pay, instant pay, daily pay benefit, or earned income access. But all these names refer to a solution that does the same basic thing: It helps employees access wages they’ve already earned before payday comes. This helps employees manage cash-flow emergencies using their own resources, while avoiding credit card debt or other predatory financial solutions like payday loans.
Earned wage access helps employees, but it’s advantageous for businesses, too. Employee Benefits News named EWA “the most important benefit in a post-COVID-19 world,” citing PwC’s 2019 Employee Financial Wellness Survey which found that “47% of employees are stressed with their financial situation.” By offering EWA, employers can address employee financial stress which negatively impacts the business due to lost productivity and absenteeism. At the same time, this benefit positively impacts retention and the employee experience. Let’s take a look.
The Employee Benefits News article mentioned earlier says that if employees, specifically front-line workers, don’t feel supported and valued then business will suffer. Problems with retention, engagement, and productivity are projected to get worse, which should serve as a big red flag for businesses — because these issues were already cause for great concern. Here’s how offering EWA can help businesses.
Money is the top source of stress among Americans; it ranks even higher than work or personal relationships. PwC’s 2018 Special Report: Financial stress and the bottom line revealed that 50% of employees feel stressed about their personal finances, and half of those surveyed reported spending three or more hours per week dealing with personal finances. Another 12% said they’d missed work more than once to deal with money problems.
For an employer with 10,000 workers, the productivity losses from all this can be as much as $3.3 million per year. An additional $166,000 goes to absenteeism — all as a result of financially stressed employees. It’s important to note that in the PwC survey, the 50% of employees who were stressed about finances said it was mostly because they couldn’t cover emergency expenses. This is exactly where earned wage access can come into play: It helps workers cover emergency expenses using their own money, without resorting to “solutions” like payday loans or predatory credit cards that only make their problems worse. This enables your workers to stay focused on their jobs instead of wondering how they’ll handle a financial crisis.
Data shows that when employees feel heard, supported, and taken care of, they stay at their jobs longer. In addition, companies that monitor the health and public sentiment around businesses note that companies which focus on workers’ well-being — specifically their financial security — fare better. Offering Even’s responsible on-demand pay solution has helped companies make great strides in this area:
By offering EWA to help employees go from stressed and disengaged to feeling taken care of and focused, employers can reap positive business benefits and create stronger bonds with workers. And, employers can receive these benefits at little to no cost: Offering Even’s EWA solution to employees can cost you nothing.
Having access to earned wages is an incredibly important foundation for employee financial wellness. Currently 74% of American workers live paycheck to paycheck; even households making $100k or $150k per year struggle to make ends meet. The Federal Reserve has reported that 40% of Americans couldn’t come up with $400 in an emergency.
If employees who are living paycheck to paycheck and don’t have the safety net of emergency savings, having access to earned wages can help them avoid catastrophe. When bills come due or the car runs out of gas, many workers turn to things like payday loans, predatory credit cards, or overdraft fees.
However, these “solutions” often leave workers much worse off: Payday loans are debt traps, in which borrowers often end up paying back $793 for a $325 loan. Credit cards can pose their own risks, with low rates that can jump much higher, and balances that are nearly impossible for workers to pay down. And overdraft fees have gone up by 56% in the last two decades, from $21.57 in 1998 to $33.36 in 2019.
When employees have access to their own earnings before payday, urgent financial needs can be met without the involvement of financial products that incur more debt, fees, and stress:
By turning to earned wage access in moments of need, employees using Even’s on-demand pay platform have avoided over $150 million in fees and interest that would have otherwise gone to payday lenders, banks, and credit card companies.
In August of this year, leading publication for fast-casual dining businesses QSR Magazine recommended EWA as a way to offer employees security and stability, saying, “Any sort of consistency or stability you can provide will go a long way. Earned wage access, where employees can access a portion of their earned wages ahead of their scheduled payday, is a benefit that can offer that.”
Earned wage access helps stabilize employees in the moment. A financial wellness solution that includes earned wage access among other features — like planning, spending, budgeting, and spending — is what will help your employees achieve true financial stability.
One of the most powerful things employers can do to support employee financial stability is to help them build emergency savings, so employees can manage their own financial shocks without outside intervention. Earned wage access is the first step; offering additional features to plan and build savings alongside EWA is the whole package.
There are several types of EWA products on the market; the most common models are membership, transaction, and pay card. The way the product is structured is closely related to the provider’s business model, as well as its pricing. And all these variables have impacts on the people who are using EWA — your employees — so it’s critical to choose a responsible earned wage access solution.
With a membership model, the employee pays one flat fee per month no matter how many times they use EWA. If there is more than one way the employee can access their funds, the membership fee covers all available options.
The transaction model means an employee pays a fee every time EWA is used. Fees can vary depending on how quickly the employee wants access to their funds; for example, next-day transfer instead of instant. “Tipping” models also fall into the transaction model category, with variable fees and limited transfer options.
A pay card model is sometimes used to characterize EWA as “free.” While it’s true that taking an advance is free, there are usually hefty fees for receiving EWA funds in an external account or moving money from the debit card to an external account. Not all pay card EWA providers offer cash pick-up options, and some rely on fee-based ATMs for cash access.
With transaction and pay card models, the more employees use EWA, the more the provider profits, so they’re incentivized to encourage more frequent use. This can end up costing your employees much more money. A transaction model vendor could take $14.95 in fees in one month, while a pay card model provider could take up to $24.95 — a membership model however would only charge workers a low flat fee for the same amount of monthly use. In Even’s case, that would be $8.
Importantly, a membership model is also different because it doesn’t incentivize providers to encourage more EWA use. It’s not that providers using this model make their EWA hard to access or use. Instead, they also provide tools and support that help employees gain financial confidence and stability, thus being able to reduce their reliance on EWA in the long run. These models should also ideally unsubscribe users after a period of inactivity, so your employees aren’t paying for something they aren’t using.
So how does this type of provider make money if it’s not incentivizing higher EWA use and charging fees for it? For a membership model EWA business to be sustainable, its non-EWA features must provide enough value for employees to want to keep using — and paying — for the app. In other words, a membership model provider’s business has to be aligned with employees’ best interests, not what makes the most money. This is what constitutes a responsible earned wage access solution.
To learn more about how to evaluate and select the best EWA solution for your workforce, download our free ebook: Earned Wage Access: A Guide to Getting it Right.
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