Earned Wage Access: Key Compliance Considerations

earned wage access providers are not the same as payday lenders

Earned wage access is certainly gaining momentum in the workplace. It’s good for employees who may need to access their earnings prior to payday for an emergency or to pay a bill on time. And it’s good for employers because it’s been proven to reduce turnover by up to 72% and it helps to increase recruitment, engagement and retention. 

What is Earned Wage Access? Earned wage access (EWA) means giving access to wages earned—in this case, before they would typically be paid out on payday. it is a way to remove the gap between the time an employee earns his or her money and the time he or she can access it.  But all earned pay access providers are not all the same when it comes to compliance, a key concern of payroll teams. In fact, quite a few are wolves in sheep’s clothing — with practices that are similar to payday lenders

If you’re considering offering a daily pay benefit, you need to do your due diligence when it comes to choosing an earned wage access provider who adheres to rigorous compliance standards. Here are a few of the things you need to look for:

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Does the earned pay access provider debit employee accounts to recoup any early pay transfers in any state?

Some earned pay access providers debit the employee’s bank account to be paid back. This practice has high regulatory and reputational risk. Recent regulatory inquiries in New York, Connecticut, Illinois, Maryland, New Jersey, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota and Texas indicate that regulators view debiting an employee’s account as a primary indicator that the transaction is a loan. Companies should be very careful not to include debiting as a means of payback for the vendor.

Does the earned pay access provider engage in pay discounting?

If the provider deducts the full amount of any early pay transfers from the employee’s paycheck, the provider could be in violation of the laws in 13 states where pay discounting is illegal. If you are not in one of those states, you may still wish to check with your management team to ensure there are no future plans to expand into those states. Your safest bet? Choose a vendor who is 100% compliant with pay and hour laws in all 50 states in one consistent structure.

Will the employee’s pay stub reflect 100% of pay earned during the pay period?

When rolling out a daily pay benefit, it’s critical that your company chooses a provider that allows you to continue to fulfill your obligation to report properly all of each employee’s pay.

Having a record (the pay stub) of an employee’s full net pay being remitted is a critical compliance requirement and an affirmative defense for your company if litigation arises for any reason concerning an employee’s pay. Without such a record, you will be at risk of being unable to prove that you remitted full pay to the employee in a court of law.

The Fair Labor Standards Act requires that employers keep accurate records of employees’ pay and hours worked. Although certain states may not require employer-issued pay stubs, employees have a right to request their payroll records at any time.

Printed pay stubs are mandatory in the following states: Arizona, Colorado, Connecticut, Hawaii, Iowa, Maine, Minnesota, New Mexico, North Carolina, Texas and Vermont. Employers may be able to supply electronic pay stubs as long as:

  • Employees can electronically access their pay stubs 
  • Employees have a secure and unique login
  • Employees can print their pay stubs 

Could there ever be an accusation of pay theft?

In order for an employer to avoid an accusation of pay theft, the pay stub must be accurate. Pay theft litigation can arise in a number of situations, including non-payment of overtime, not giving employees their last paycheck after they leave a job, and not paying for all the hours worked.

Here are some examples involving pay theft litigation:

  • Chipotle (2016): 10,000 employees brought a class-action lawsuit alleging they were told to work hours “off the clock.” Nearly 3,000 workers were removed from the suit since they had signed class-action waivers upon employment, but the litigation is still ongoing for the other employees.
  • Staples (2010): settled a class-action lawsuit “related to allegations that the company had not paid its assistant store managers overtime to which they were entitled.”
  • Walmart (2008, 2012, 2014-2015, 2016): Walmart has had to pay several pay theft penalties over the years, including settling $352M in 63 pay violation lawsuits in 2008, $5M in back pay in 2012, $188M in 2014-15 for Walmart and Sam’s Club employees in PA, and $54M for failing to pay a certified class of truckers for time spent on work-related, on-duty tasks.

Some states have additional requirements to prevent pay theft. For example:

  • Under the New York Wage Theft Prevention Act (WTPA) and the Hospitality Wage Order, pay stubs must contain the following information: hours the employee worked – both regular and overtime, rates of pay, any allowances taken against pay (for example, tip credit, meal allowance, etc.), dates of work covered by the payment of income, name of employee, name of employer, address and phone number of employer, gross pay, deductions and net pay.
  • It is also imperative that employers keep copies of each employee’s pay stub for at least six years. The pay stub copy can be paper or electronic, but it must be compliant and accessible. Employers assume their payroll companies have and maintain these records, but we often find that the payroll company does not maintain the copies. 
  • Minnesota enacted changes to its Wage Theft Law, effective on July 1, 2019, that affect earnings statements. Earnings statements provided at the end of each pay period must include all previously required information, plus:
    • The basis of pay, including whether the employee is paid by the hour, shift, day, week, salary, piece, commission or other method and the specific application of any additional rates
    • Allowances for meals or lodging
    • The address and phone number of the employer

As you can see, compliance is complicated, and there are plenty of hornets nests to avoid if you’re considering offering a daily pay benefit. Hopefully, the questions in this article provide a strong foundation for discussion with potential earned wage access providers to ensure that, when it comes to compliance, they’re dotting all their i’s and crossing all their t’s. 

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