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Pros and cons of earned wage access (EWA)

Written by: Elizabeth Walker
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Published on November 9, 2022.

As the average American worker struggles to keep up with inflation, it can be challenging for them to wait for their regularly scheduled paycheck. One study1 found that 50% of hourly employees had no emergency savings at all, and almost 80% had less than $500 saved.

This is why some employers are now offering earned wage access (EWA) to help their employees meet their financial needs in the middle of a pay period. EWA has grown in popularity because it gives workers a more flexible pay structure and greater financial stability.

Before setting up EWA at your organization, you need to determine if it’s right for you and your employees. This blog will give you an overview of EWA, its pros and cons, and other personalized benefits you can offer to increase employee retention.

Learn what other fringe benefits you can offer at your company in our guide

What is earned wage access?

Earned wage access, also known as early wage access, instant pay, earned income, or on-demand pay, is the ability for employees to access their already earned net pay before their designated payday.

EWA isn’t an advance or a payday loan. Payday loans are short-term, high-cost loans with steep fees and high-interest rates that are typically due on an employee’s next payday. However, EWA is just a way for employees to receive income for every hour they’ve already worked. They can’t receive pay for hours they haven’t worked yet.

Giving workers instant access to their wages means an employee who finishes their eight-hour shift can immediately request their money for the eight hours they worked instead of waiting a week or two. Using EWA, an employee’s money is readily available in case they need to cover a much-needed bill or an unexpected expense.

How does earned wage access work?

For employers

Let’s start with how EWA works for employers. The simplest way to set up EWA at your organization is to integrate an EWA app with your current payroll provider. The EWA app lets you make your necessary payroll deductions before automatically sending your employees’ available net wages to them.

Employee requests for earned wages are handled outside your regular payroll structure. Because the EWA app is integrated into your payroll system, there’s no need for you to make any manual processing changes to your regular payroll.

For employees

Employees use your chosen wage access provider’s app to request their earned wages before their regular payday. They can choose to receive all or part of the wages they have worked. However, most apps charge a withdrawal fee and a maximum withdrawal limit between $100–$500.

They then choose to have their wages transferred directly to their bank account or a pay card. They must connect their bank account to the EWA app for direct deposit. With the pay card option, employees can “bank” their money and draw from the wage balance on the card at any time, similar to a debit card.

The app will deposit the employee’s remaining wages on their regular payday. For example, if an employee earns $1,000 biweekly, but requests and receives $200 early, they get the remaining $800 at the end of the pay period.

What are the pros of earned wage access?

1. Improved employee attraction and retention

In this tight labor market, offering EWA goes a long way toward enticing hourly workers to join your company. Especially during periods of inflation, employers that provide their employees with benefits that help them financially tend to have an edge over their competitors.

EWA can also positively affect your employee retention rate. According to a Ceridian study2, 78% of employees between the ages of 18-44 said earned wages access would improve their company loyalty. Another survey3 found that EWA boosts employee retention by almost 36%.

Simply put, once your employees have on-demand access to their pay, they’re less likely to leave a job for an employer that doesn’t offer it.

2. Greater employee productivity

Financial stress is a concern for everyone these days, and your employees are no exception. If you have financially strapped employees, they’re more likely to fall behind on bills. This may cause them to take a second job, lowering their availability or productivity at your company.

EWA helps relieve financial stress by giving your employees visibility into their accrued daily earnings and allowing them immediate access to cash. When your employees are confident in their finances, they’ll be more engaged and productive at work, and less likely to let stress or the need for a second job distract them.

3. Increased financial wellness

EWA gives employees greater control over their money to cover general bills, groceries, and other financial needs. But it can also improve their overall financial wellness.

More than half4 of all American workers are living paycheck to paycheck. Unpaid bills and late payments can negatively impact a person’s credit score and lead to potential service shutoffs. Employees who need quick cash may turn to credit cards or payday lenders, which typically have high interest and fees.

Access to on-demand pay providers can save your employees unwanted costs by avoiding late fees, bank overdraft fees, and payday loan or credit card interest. It empowers your workers to manage their budget in a way that works for them, helping them to make smarter financial decisions.

4. More money for unexpected emergencies

Having EWA can also help your employees if they have an unexpected personal emergency, like a medical crisis or costly car repair. Employees who experience an emergency usually need more money than expected. However, a recent Bankrate survey5 found that only 44% of U.S. adults could cover a $1,000 unplanned emergency.

With earned wage access, employees can close the gap between paychecks and quickly get the money they need to navigate their emergency. Having the option provides a monetary cushion if the unexpected happens, giving employees peace of mind and lessening the amount of stress during a crisis.

What are the cons of earned wage access?

1. Potential fees for employees

There are several EWA providers in the U.S., and they all charge their members in different ways. While membership and transfer fees may be easy to understand, calculating fees and interest rates can be challenging for some customers.

For example, an app provider may charge a transaction fee if an employee requests a same-day transfer to their bank account. These fees can add up if employees access portions of their pay on a regular basis.

Not understanding all the potential fees that come with earned wage access can cause employees to end up paying unexpected costs and make the benefit not seem worth the added expense.

2. Maximum request limits

Most EWA apps have maximum request limits, which can be frustrating for employees who need to cover a larger bill, like rent or a car payment.

For instance, some apps set their limit at $500, but new users are limited to $100 until they’ve used the app for a certain amount of time. Other apps may restrict how often employees can request wages in a single pay period.

While app developers may see these limits as promoting the benefit for emergency use only, a recent study6 found that most employees request early pay several times a month, or even several times during a single pay period. For frequent users, request limits may be a drawback.

3. Limited on-demand availability

EWA apps often promote immediate payments, but instant timely access may not be available for your employees, depending on what app you use at your company.

After a request is submitted, an employee could be stuck with a long wait before receiving their money. Some apps may have a mandatory one- or two-day waiting period between when a wage request is submitted and when funds are ready to access.

Even if your app offers instant access to wages for a one-time cost or allows instant pay capabilities with a premium membership, the extra fees and inflexibility for fast payouts may discourage your employees from using the benefit.

4. Privacy concerns

After your employees sign up for an earned wage app, they must provide sensitive personal and financial information to get paid. Therefore, they may not know that they’re releasing personal information to third parties in exchange for using the app.

These apps generally have robust security measures in place, but sharing personal information online has risks. Your employees’ sensitive data about their pay, hours, and overall financial health can be hacked or mishandled, putting them in danger of financial harm.

Before choosing an on-demand wage system, make sure you know what data is collected and how they protect the information before introducing it to your employees.

What other personalized benefits can I offer my employees?

EWA is one way to support your employees financially. But having a variety of personalized employee benefits as part of your compensation package plays a crucial role in recruiting and retaining top talent.

In the sections below, we’ll highlight a few personalized benefits you can offer at your company that your employees are sure to value.

Health reimbursement arrangements (HRAs)

If your employees are stuggling with health costs, you can offer fit, a health reimbursement arrangement (HRA) to cover those expenses. With an HRA, employers give their employees a monthly allowance that they can use to pay for eligible medical expenses and other qualified out-of-pocket expenses.

You can customize your HRA by setting a budget-friendly allowance and deciding what medical expenses to allow for reimbursement, and your employees are free to choose the healthcare services and items they need. This flexibility gives your employees more power over their and their family’s medical decisions.

There are three popular types of HRAs: the qualified small employer HRA (QSEHRA), the individual coverage HRA (ICHRA), and the integrated HRA. While they have their differences, like company size eligibility and contribution limits, they’re all payroll tax-free for you and income tax-free for your employees.

Employee stipends

Another option you can leverage to boost employees’ financial security is an employee stipend. Stipends allow you to reimburse employees for a wide variety of expenses, such as health, wellness, remote work costs, and even financial literacy courses.

For example, employees who pay for internet access to work from home can be offered a remote work stipend,, while a wellness stipend can cover the costs of wellness activities, such as gym memberships and mental health counseling.

Stipends are an excellent way to give your employees the flexibility to choose how to spend their benefit dollars. However, it’s important to note that in most cases, they’re considered taxable income for your employees.

Other personalized benefits

Outside of personalized health benefits, several other employee benefits are known to help employers better care for their employees and reduce turnover.

Other personalized employee benefits to consider adding to your compensation package include:

Conclusion

A wage access solution is a simple way to help your employees have more control and flexibility over their earnings. They can help your employees maintain more financial stability, which in turn will make them happier, more productive, and less likely to leave your company.

If you’re looking for more ways to support your employees, an HRA or stipend may be just what you need. Contact our personalized benefits advisors, and we’ll get you set up with personalized employee benefits to help you have a more motivated and financially successful workforce.

1https://www.cbsnews.com/news/saving-money-inflation-hourly-worker-minimum-wage/

2https://www.ceridian.com/company/newsroom/2021/ceridian-study-americans-want-to-be-paid-on-demand

3https://cdn2.hubspot.net/hubfs/172936/pwc-financial-stress-and-bottom-line.pdf

4https://www.cnbc.com/2022/06/27/more-than-half-of-americans-live-paycheck-to-paycheck-amid-inflation.html

5https://www.bankrate.com/banking/savings/financial-security-january-2022/

6https://aite-novarica.com/report/making-ends-meet-demand-pay-and-employer-based-loans

Originally published on November 9, 2022. Last updated November 9, 2022.
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