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Earned Wage Access 101

Spark Team

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Why and how to put EWA to work for your business and your employees.

Earned Wage Access (EWA) allows employees to access their earned pay prior to payday so they can tap into their earned pay to help meet unexpected expenses without having to pay late fees, overdraft fees, or resort to predatory payday loans.

For employers, EWA programs represent an additional tool in a recruiter's arsenal to compete for talent, while giving HR another way to help employees reduce financial stress in the short term. As a complement to a broader financial wellness program, employers can leverage an EWA program to help employees to head down a path to feel more in control of their finances.

The need for EWA

According to Neighborhood Trust Financial Partners, personal finance is ranked as a leading cause of employee stress in the country and nearly 50% of US. employees suffer from financial stress. Financially stressed employees lose about a month of productive work days each year, and they are twice as likely to seek a new job opportunity. EWA helps relieve financial stress, by eliminating the need of having to wait for their next paycheck to access pay.

Attractive to employees

As a recent ADP survey suggests, employers also find that employees who use this offering are more loyal and want to stay with them longer, reducing turnover and its associated costs highlighting why the timing for employers to offer EWA is so opportune.

• Broad interest in EWA. Workers in every age group, at every educational level, and at every income level polled by ADP expressed interest in EWA. On average, 66% of employees working for companies that didn't offer EWA said they would be interested if their employer were to offer it. Similarly, 82% of surveyed employers with over 1K employees that did not offer EWA said they were interested in adopting it.
• EWA adoption exceeds expectations. Survey results from employers offering EWA suggest that adoption is broad and swift across employee demographics, often exceeding expectations. When asked how often they might use EWA, 20% of surveyed employees suggested they might use it every or every other pay period. Among employees that did have access to EWA, 62% surveyed said they used it every or every other pay period.
• Millennials prioritize job offers from employers that offer EWA. A majority (59%) of millennials would give priority to a job offer with an employer that offers EWA. Similarly, a majority (57%) say that availability of EWA would influence their acceptance of a job offer. This suggests that employers offering EWA can gain a competitive recruiting and retention advantage.
• Talent attraction & retention. 77% of surveyed employees across all age, education, and income levels said it was important for their employer to offer EWA.

Putting EWA into action

The biggest perceived obstacles to implementing EWA according to employers surveyed by ADP who had not yet adopted a program were compliance, cost of implementation and complexity. Those employers indicated that a solution that had no impact on existing payroll processes, that was simple to execute, and required minimal incremental work for their staff would be attractive to them.

The good news for employers is that a properly-implemented EWA program can be compatible with existing payroll processes, providing flexible pay options without adding cost or complexity for payroll departments.

Here's how it works:

Employee enrollment

To participate, employees agree to the terms of the EWA program, which should include descriptions of any fees, program opportunities and limits, time parameters between when an employee requests EWA and receipt of payment, how and when the EWA will be paid back, and privacy policies.

Employee EWA requests

Employees generally can request EWA online or via a mobile app provided by the employer, payroll service provider, or EWA provider. The EWA service provider determines the amount available to each participating employee by verifying actual wages earned to date in the current payroll period. The amount is often limited to a percentage of net earnings to allow for tax and other withholding, which occurs with the next regularly scheduled payroll.

Many EWA providers approximate full net pay from existing individual elections and deductions. Others cap access at a certain percentage of gross pay to approximate net pay. An employer also may elect to place their own cap on the percentage.

EWA distribution and repayment

There are two basic approaches to the employer-integrated EWA process:

1. Payroll deduction. The EWA provider distributes a percentage of earned pay to an employee's account. On the next payday, the employer deducts the early pay amount from the employee's payday amount and distributes it to the provider.
2. Payroll settlement. The EWA provider requires the participating employee to have a settlement account with the provider, or uses a provider's payroll card. Any wages accessed early are deposited by the provider to the employee's existing personal bank account or card. On the next scheduled payday, the employee's wages are directly deposited to the employee's settlement account by the employer. The provider then deducts any early wage amount already paid to the employee, and instantly credits the balance to the employee's existing personal bank account or card.

Receiving funds

Most EWA providers offer participating employees the option of either next-day or immediate access. Employees generally direct their EWA payments to their bank account, prepaid debit cards, payroll cards, mobile cash apps, or cash pickup at retail outlets. EWA providers typically offer a payroll card or enable the employee to use their traditional bank account as a part of the EWA solution.

An EWA provider may use its own funds to pay employees, or may require employer funds in advance of paying employees. Employers should consider the advantages and disadvantages of these options, including cash flow, payroll administration, fraud avoidance, and liability.

Employer payroll reconciliation

An employer or employer's payroll service provider reconciles pay records to make sure that the employer's ledger matches the distribution to employees. With EWA, at payday the remaining pay is calculated and standard deductions are taken out

Employee fees

Employers should understand the potential fees associated with EWA and ensure they are clearly communicated to employees. EWA provider fee models may vary from provider to provider. Some may charge a fee to the employee to allow a specific number of EWA transactions per pay period or month, while others may charge a per-transaction fee. Some employers may decide to pay some or all of these fees for their employees while others may not.

Learn more by launching this on-demand webcast anytime, Offering Earned Wage Access: Strategic & Compliance Considerations