Compliance Considerations When Offering Earned Wage Access
EWA compliance doesn't have to be complex. Here's what you need to know.
Earned Wage Access (EWA) allows employers to easily and efficiently offer employees access to their earned wages prior to the next payday. EWA has proven to be extremely helpful to consumers as they strive to meet expenses, even while their next paycheck may be a week or two away.
According to a recent ADP survey, among companies that have hesitated to adopt an EWA solution for their employees, the potential compliance impact of EWA is cited as one of the reasons they have yet to jump onboard.
In a recent webcast, Pete Isberg, ADP Vice President, Government Affairs, suggested that compliance concerns are rooted in how wages have been addressed historically.
"No state has enacted government regulation for EWA yet to date, and it's not at all unusual for the law to follow practice by 10 years or more," Isberg said. "Many of our current policies that govern pay were enacted during the Great Depression in response to abusive practices such as paying employees in scrip, which could only be redeemed at a company store, so many laws still reflect that era. In fact, paying workers via direct deposit, which we take for granted now, faced a decade of legislation during the 1970s."
All this can leave employers operating in a legislative vacuum and as a result they may tend to err on the side of caution.
To gain some confidence from a compliance perspective, consider these points when adopting EWA:
For federal guidance, look to CFPB and Regulation Z
Since EWA involves payment of earned wages in advance of a scheduled payroll date, some regulators have raised the question of whether EWA should be treated as a form of lending.
The Consumer Financial Protection Bureau ("CFPB") recently issued advisory guidance addressing whether the Truth in Lending Act ("TILA") and the related Regulation Z applies to EWA programs. The CFPB concluded that certain characteristics can distinguish EWA programs from being considered credit.
Different EWA programs vary on key aspects of their process. But some characteristics, as explained in the CFPB's advisory opinion, can make EWA sufficiently distinct to not be considered a form of credit:
- The EWA provider contracts with the employer to offer EWA services to workers
- The amounts available to access are not more than what the worker has already earned
- No reporting of EWA transactions to credit bureaus
- No issuance of post-dated checks by the worker to the EWA provider
- The EWA provider recovers the withdrawn earned wages through an employer-facilitated payroll deduction or similar recovery mechanism from the employee's next paycheck.
The CFPB emphasizes that EWA programs that vary from these criteria are not necessarily forms of lending. The CFPB guidance is only determinative for those programs that fit the prescribed characteristics.
State EWA legislation is possible, but none have been enacted to date
As uncertainty remains, it's important to note that no state has adopted legislation or formal guidance. A few states have proposed legislation to address EWA programs. Most would require registration of any service providers and would establish in state law that qualifying EWA programs do not constitute lending.
Data tells an important story about the value of moving forward while states explore the topic, says Ankit Jhunjhunwala, Director of Product Marketing, Employee Financial Solutions ADP, Inc.
"Today, 76% of workers from all age groups, education and income levels, say it's important for their employers to offer EWA," Jhunjhunwala said.
Citing ADP survey results, he added, "Millennials prioritize offers from employers based on EWA and would consider resigning if not offered."
Explore more: Launch the on-demand webinar
Register and replay the one-hour, on-demand webcast, Offering Earned Wage Access: Strategic & Compliance Considerations, to understand more about the rising demand for EWA and receive critical insights on both federal and state requirements.
ADP continues to monitor changes in regulations related to EWA at the federal and state level and publishes them in our Eye on Washington updates. Subscribe to SPARK/Legislative Alerts in the subscription box on any SPARK article page.
