With over 50% of employees living paycheck to paycheck, EWA can help alleviate financial stress, preventing workers from seeking extra work or turning to predatory payday loans. Offering EWA also reduces employee churn and boosts morale.
What is EWA?
Providing employees with earned wage access (EWA) can be a powerful benefit to make your business stand out in the tight labor market. Employees are looking for companies that care about their people beyond making profits. Companies that offer benefits like flexible work schedules, safe work facilities, and paid leave are more attractive to workers than those who do not. The question is, what is earned wage access? On-demand pay, or earned wage access, is a payroll innovation that allows hourly employees to request a portion of their paycheck early in the pay period. This money is deposited on their next payday, and any remaining wages are paid as usual at the end of the pay cycle. Unlike payday loans and advance services, which can carry high fees and interest rates, EWA does not. The primary benefit for employees is less stress, especially during times of financial crisis. This can improve their overall health and reduce the need to rely on costly 3rd party vendor advances, pawn shops, or credit cards. These financial burdens can also negatively impact their credit scores, leaving them trapped in a cycle of debt. Many different vendors offer earn-wage access in the United States, and they have a variety of cost and revenue models. Some are membership-based, while others charge a service transaction fee to provide same-day funds transfers to employees’ bank accounts. Employees should be aware of these potential fees so they can budget accordingly.
How does EWA work?
Earned wage access, or on-demand pay as it is sometimes known, allows employees to withdraw a portion of their net earnings before their regular paycheck arrives. It connects to a worker’s bank account or a provider’s app verifying work hours. Once verified, the employee can request a portion of their wages up to a set amount, which will be deposited on the next regular payday. Many hourly workers may need help with the disconnect between their daily expenses and traditional paychecks. Offering EWA can help alleviate that stress and provide financial stability. It can also reduce workforce turnover and make your company more attractive to new hires. Unlike credit cards, which can incur expensive fees and interest charges, EWA provides access to your employees’ money. Employees are less likely to rely on credit card debt in an emergency. It also means they can use their paychecks for essentials such as rent, car payments, and utilities.
Benefits for employees
As the employment market tightens, offering EWA is a competitive way to attract and retain hourly employees. Employees value this type of payroll benefit, and research shows that companies with on-demand access to earned wages see higher employee retention rates. This salary advance service has helped employees manage their money better, avoid payday loans, and meet unexpected expenses like emergency medical care and car repairs. It has also helped them build a savings cushion. This financial flexibility has become attractive for many employees in a world of uncertainty and high inflation. You can implement an Earned Wage Access program that doesn’t disrupt your existing pay cycles or add costs to your business. Most mainstream EWA providers use models that leave payroll undisturbed and don’t charge you anything beyond a transaction fee (typically less than $5 for a 10-day advance of $100). This is another reason to consider adding an on-demand pay solution to benefit your workforce.
Benefits for employers
Many companies have begun to offer an employee benefit called earned wage access, or EWA. This allows employees to draw money from their paychecks before payday, helping them to bridge the gap between paychecks and avoid predatory high-interest payday loans. However, knowing the benefits and drawbacks of this employee benefit is essential before implementing it at your business. The most significant benefit for employers with EWA is reduced employee turnover. In a tight job market, hourly workers are often attracted to employers with flexible work schedules and attractive benefits. By providing on-demand pay, companies can reduce their employees’ stress levels and motivate them to stay with the company. Another benefit is improved productivity and engagement. When employees are not worried about how they will pay their bills, they are more focused on their work.
Additionally, they can save more of their paychecks to cover unexpected expenses if they do not have to use their credit cards or borrow money. It is important to note that some paid advance apps may collect data about an employee’s financial history and send it to third parties. This data can be used to target them with other credit products they are likely to be unable to afford. To avoid this, it is best to partner with payroll providers that provide employees with a fee-free earned wage access service.