Earned wage access (EWA) goes by many names — early wage access, on-demand pay, daily pay benefit — but essentially they all refer to the ability for an employee to access the money they’ve earned before their scheduled payday.
The earned wage access industry is relatively new. Two years ago, very few companies had even heard of it. Today, it’s not a question of whether a company will adopt the benefit but rather when. More employers are considering earned wage access as a benefit for employees, many of whom want greater flexibility in how they are paid. About 25% of payroll professionals said in recent surveys that on-demand pay is a must-have solution for improving the employee experience, which is a top priority in 2020.
But this isn’t just a trend for the gig economy. Instant-wage access could spread across the income spectrum in the post-pandemic economy.
Because the current lay-offs impact workers with a wide range of wages or salaries, we may see this benefit offered to more employees, including even those with higher incomes. “The EWA use case is shifting from an individual need to a household need, as more white-collar workers are furloughed or have their salaries cut,” says Jeanniey Walden, DailyPay’s chief innovation and marketing officer.
There are plenty of benefits for both employers and employees and, with the right vendor, there are no costs and no risk involved to companies who choose to offer it.
Dive deeper into the importance of on-demand pay.
Benefits to Employers
Let’s start with employers, especially since at the time of this writing, businesses are once again starting to reopen post-COVID. Many employers are looking to offer earned wage access as a cost-containment, voluntary benefit because it’s available from select third-party vendors at no cost.
According to a PwC employee financial wellness survey, one in four employees have been distracted at work by personal finance issues within the past year. Of those who responded that they were distracted, nearly half spent three or more working hours thinking about or trying to handle or resolve the problem. A Federal Reserve study found that over 40% of adults would not be able to cover an emergency expense of $400 if one arose.
Financial stress doesn’t just cause a decrease in productivity — it could lead to lower levels of pay satisfaction from employees, increased absenteeism, and increased turnover rates.
Here are some of the benefits employers have experienced as a result of offering a daily pay benefit:
- 1.9x increased in applicants to a job that offers on on-demand pay benefit
- 50%, on average, reduction in turnover
- 49% average increase in employee productivity
- Ability to fill open positions in more than half the time (52% faster)
- 26% reduction in absenteeism
- Applicants are 13% more likely to apply for a lower-paying job with on-demand pay
In addition, an earned wage access solution can be implemented at no cost to employers and without any changes to current payroll processes, including the timing of funds or withholding of taxes. Offering an on-demand pay benefit solution to employees also increases employee engagement, with 73% of employees stating that their opinion of their employer had improved as a result.
Benefits to Employees
The benefits of having access to their earned wages are equally impressive for employees. At a time when 78% of all American workers are living paycheck to paycheck, the ability for an employee to access their earned income when they need it, before payday, is essential.
With access to their earned income, employees can close the gap between paychecks, pay bills on time and avoid overdraft fees, late fees and high-interest predatory payday loans. They can also meet unexpected expenses, like emergency medical care and car repairs, reducing financial stress and increasing financial health.
With access to their earned wages, employees can save up to $1,205 per year, on average, in overdraft fees, late fees and fees and interest associated with payday loans. In addition:
- 85% of users say access to their earned wages makes them more able to budget and pay large monthly bills like rent, utilities, car payment, etc.
- 78% of users say access to their earned wages helps them pay their bills on time and avoid late or overdraft fees
- 74% of users say access to their earned wages has helped reduce their financial stress
- 70% of users say access to their earned wages has helped them avoid taking out a payday loan
- 59% of users say access to their earned wages motivates them to go to work
- 51% of users say access to their earned wages has helped improve their financial health
- 50% of users say access to their earned wages has helped them be more disciplined about spending
- 46% of users say access to their earned wages has helped them save more
This latest research report, On-Demand Earned Wage Access: U.S. Vendor Comparison, gathered data about key players in the on-demand pay industry, including Acrisure, Blue Yonder, Branch, DailyPay, Dave, Delaget, Earnin, Evolve Bank and Trust, FlexWage, Instant Financial, Kronos, Mastercard, PayActiv, The Clearing House (TCH) and Visa.
With benefits like these, earned wage access is proving to be a real game-changer for both employers and their employees alike.
What Does the Best Earned Wage Access Provider Look Like?
Any business that is considering offering a daily pay benefit, needs to do their due diligence when it comes to choosing an earned wage access provider who adheres to rigorous compliance standards.
Getting access to earned wages has taken on new meaning during the COVID-19 pandemic, with millions of people scrambling to make ends meet.
In May 2020, DailyPay enlisted Mercator Advisory Group to conduct a survey of 1,000 U.S. low-income (income less than $75,000/year) salaried workers to determine the value and propensity of this demographic to participate in an on-demand pay (also called earned wage access) solution.
While much has been done to study hourly workers and their vulnerability to financial stress, far less has been done to study salaried workers and how they react to the challenges imposed by unforeseen financial hardships in between paychecks.
This study revealed that, by introducing an on-demand pay benefit, employers can help their workforce reduce the stress associated with paying monthly bills. Most notable and relevant today, nearly half (46%) of those polled are stressed by having to pay monthly medical bills. Allowing workers access to their earned income provides them with financial flexibility, and empowerment over their pay reduces their stress and increases attendance and productivity at work, all at no expense to the employer.
The Consumer Financial Protection Bureau issued two groundbreaking notices at the end of 2020, both involving earned wage access. These releases have provided regulatory certainty for one specific provider while potentially heightening regulatory uncertainty for the others.
The CFPB’s Advisory Opinion provides the following compliance criteria in order for an EWA provider to be exempt from the Truth-in-Lending Act so that the EWA product will not be considered a loan.
DailyPay’s model is not impacted by either the November or December CFPB EWA opinions. DailyPay has never used the wage deduction method, and does not need to rely on any such exemption. These exemptions only apply to providers that could be deemed to be extending credit. DailyPay has never and will never require any form of employee payback and thus does not fall within the purview of either opinion.