To combat a tight job market and a seemingly shrinking workforce, employers are looking for creative ways to retain and attract talent. An Earned Wage Access Policy — a groundbreaking benefits program that gives employees near-instant access to their paycheck — might just be what gives companies the edge. In fact, companies using these benefit programs experienced 19% lower turnover rates. Among companies that have already added access to earned pay to their compensation packages, 89% of employees reported feeling more motivated and productive at work when they had access to their pay before payday and 74% reported reported having fewer unplanned absences. But with many states plagued with onerous employment laws, what do employers need to know about access to earned wages to implement a program successfully?
Access to Earned Wages (EWA): what is it?
Access to Earned Salary or Advance Salary Access is an innovative method of paying salaries. Traditionally, payroll is run most often on a bi-weekly or monthly basis. But now, employers – by partnering with EWA suppliers – can offer employees immediate access to earned wages for hours already worked. Rather than waiting for their bi-weekly payday, an employee can access their earned pay within hours of completing their job.
This program differs from the practice of payday loans. With EWA programs, the key is that employees have already done the work they are being paid to do. This program simply allows them to receive their earned compensation before their traditional payday. The benefit is administered through an EWA provider who typically offers payroll access to employees through many means, including direct deposit, Automated Clearinghouse Transfer (ACH), or a payroll debit card ( i.e. a payment card).
From 2018 to 2020, EWA vendors processed nearly $15 billion in advance payroll transactions. We anticipate that these numbers will continue to grow, and that the options and how salaries can be paid and accessed on-demand will continue to evolve as fintech companies continue to expand this space. In this overview, we will provide a general overview of EWA programs and five critical issues that employers should assess to successfully implement an earned wage access program. Stay tuned for more information on EWA and payment card usage, how EWA can work for employees seeking cryptocurrency compensation, and more.
5 Tips to Help Employers Successfully Implement an EWA Benefits Program
EWA is becoming increasingly popular as an attractive employee benefit. This is not surprising given that there are 56 million Gen Y employees and 65 million Gen Z employees in the current workforce. The debate over whether EWA actually benefits employees is already fierce, but what is clear is that many employees want and may soon expect this benefit as part of their jobs. Indeed, more than 78% of Americans live paycheck to paycheck, leading to increased pressure to come up with plans to make ends meet between paydays. This pressure is likely to feel amplified with gas prices and soaring inflation.
If you run a business that employs low-income earners or younger generations who want their money fast, you might consider adding EWA. However, depending on the state you are operating in, there are several things you should consider. This article discusses five top tips for employers – but this list is not exhaustive and your organization should consult with your wage and hour attorney before taking the plunge.
Tip #1: Make sure any EWA benefits program complies with state and federal wage and hour laws.
Since EWA programs are a somewhat new benefits offering, compliance with applicable workplace laws is of the utmost importance. In particular, employers must be careful to comply with specific state laws, including, but not limited to, those related to:
- Salary deductions. In states that prohibit or limit payroll deductions, employers must ensure that employees receive their full pay and are offered a free option to take advantage of the EWA benefit. Many states strictly limit deductions from earned wages to specific amounts and circumstances defined by law. The general rule is that deductions can only be made if specified by law (for example, for payments such as taxes, medical insurance premiums, etc.) or with express written permission (at limited purposes). Employers should review the EWA program to ensure wages can be obtained without incurring expense and keep a close eye on state law.
- Fair payment of wages. Employers must ensure that any EWA benefits program properly processes and pays wages in a timely manner. Data management is extremely important, as hours worked and wages earned must be properly and accurately recorded and transmitted to the EWA provider. It is important to ensure that the EWA in turn passes on the salaries to the employees.
- Salary assignments. At this point, there are no laws or guidelines that specifically address wage assignment in the context of EWA. However, it is important to note that there are state-specific laws that govern wage assignments. For example, California limits the amount and terms of wage assignments while New York regulates agreements requiring employers to divert an employee’s “future earnings” to a third party. Other states have other specific legal requirements that may need to be followed.
- No payday loan. Employees should only have access to wages already received. More than a dozen states ban payday loans and others regulate the practice. EWA is an alternative to these practices, so adherence to this model is essential for success. Some other companies provide similar services directly to the public without employer onboarding. These advanced direct-to-consumer services are not the same as employer-integrated EWAs.
Tip #2: Manage and address data privacy.
Employee personal data is governed by a minefield of laws and regulations. Employers should take precautions when sharing employee data and information.
Tip #3: Take note of benefits implications and deductions.
Paying for benefits using EWA and/or payment cards is a matter that needs to be handled carefully. For example, traditional and legacy benefit plans as well as payroll and deduction issues may arise. Be prepared to resolve issues such as insurance premiums, 401(k) contributions, taxes, garnishments, etc.
Tip #4: Pay attention to federal and state laws governing payment cards.
The use of cash cards for payroll is fairly regulated by the federal government and most states. If an EWA program offers access to wages via payment cards, be sure to review and develop a program that complies with applicable federal and state laws.
Tip #5: Make sure the EWA supplier has experience in the area and pay attention to contract language.
Choosing an EWA provider is very important. Some providers work with large national employers and have significant track records to facilitate these programs, and others are new to the market with fewer capabilities. Carefully consider the client portfolio of major vendors, their experience in your industry, and their financial capabilities based on the size of your organization.
When evaluating an EWA provider, it is important to clearly identify responsibilities in contracts between employers and EWA providers as a regulatory framework may develop for these programs. Employers should ensure they understand how wages are paid and how the EWA program works. It is also important to pay attention to issues such as indemnification provisions.
EWA’s benefits programs can give companies the edge in attracting and retaining talent and may also soon become expected by younger generations within the workforce. Compliance and legal written policies and their implementation will be key to success. Stay tuned for additional information on how this practice is likely to evolve, including how EWA programs may be rolled out with payment cards and screening regulations, as well as how we expect this to happen. that EWA interacts with cryptocurrency.