Instant Wage Access Apps and How They Work

A Wall Street banker takes home a tidy six-figure salary yearly and still experiences financial stress when it comes to paying bills on time, but an Uber driver who earns $200 a day may feel freer financially. Why? Because he has instant access to his money whenever he needs it.

Many workers are jumping ship — ditching their suits and ties to join the gig economy. Why? Apart from flexible schedules, on the other side of the aisle, payment is daily. Should everyone quit and “join the hustle”? No, that’s not necessary because instant wage access programs now offer employees a chance to receive money faster instead of waiting for the biweekly check to come.

What is Instant Wage Access?

Statistics show that 8 out of 10 employees live paycheck to paycheck. Instant wage access solutions make it possible for employees to access their earned pay before their organization’s standard payday.

Instant wage access helps employees to survive between paychecks, which improves their employee satisfaction and financial wellness, and decreases organization turnover rates. The idea is this: employees get access to the wages they’ve earned in the current pay period before payday arrives often via an app

Unlike payday loans, instant pay apps do not advance future wages or charge interest. Instead, they provide employees access to already earned wages, typically for a flat fee per transaction. This defining feature of instant pay apps frees employees from potential usurious payday loans that penalize an individual who may need only a few extra dollars a few days early in order to make ends meet.

Instant wage access apps help employees take care of essential bill payments and emergencies using their own resources. They are a lifeline that keeps workers from falling into unnecessary additional debt, paying overdraft and late fees and exorbitant interest.

Since instant wage access gives employees access to money that they have, in fact, already earned, it’s not considered a loan and employees don’t pay interest. Many providers of instant wage access operate like other financial platforms – you pay a small fee whenever you make a transfer or a monthly subscription fee. 

Types of instant wage access programs

There are a couple of instant wage access models:

  • Direct-to-employee: In this model, the employer has nothing to do with the on-demand pay program. The vendor advances gives cash to the employee, who repays it after getting paid.
  • Employee benefits IWA programs: In this model, a third-party vendor links to the employer’s payroll and time & attendance systems. The provider then fronts any early transfers for employees from their own capital, and then the employer reimburses the amount on payday. 

On November 30, 2020, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion regarding certain types of earned wage access (EWA) providers. In the document, the CFPB also provided an opinion on a legally ambiguous form of earned wage access that requires an employee to repay advances from a vendor.

Instant wage access as an employee benefit

When offered as a voluntary employee benefit, IWA can help increase employee retention and engagement.

If workers don’t feel supported by their employers, the quality of their work suffers. Some even leave to find greener pastures. The current rate of attrition is high, so many companies are implementing instant wage access programs to help improve job satisfaction and reduce turnover.

Even workers who don’t typically need early access to their pay may find it beneficial — it assures assistance if they ever need it. “Financially secure” individuals can sometimes find themselves in unexpected situations that require instant money.

Financial stress kills productivity

When a financial emergency knocks on the door, it’s beneficial for an employee to receive support from their employer. Offering an instant wage access solution as an employee benefit can help workers address their unexpected financial problems so they can keep coming to work and performing at their best.

By offering IWA to help workers overcome financial hurdles, companies can achieve highly motivated teams, higher job satisfaction and higher productivity levels. Further, unlike in-house employer advance programs, IWA employee benefit programs carry little to no cost or risk to the employer because the worker is allowed access only to what they have already earned. If workers in need of immediate cash don’t have the advantage of emergency savings, using employee benefit IWA programs can save them from having to use predatory payday loan providers who woo cash-strapped employees and then charge them exorbitant interest rates.