Answering questions and misconceptions about earned wage access

Earned wage access gives employees access to wages they have earned but not yet been paid on. There is a misalignment between the biweekly receipt of wages, and the multiple days in between during which bills and other expenses must be met.

This misalignment creates a cash flow shortfall, which hourly workers have historically filled via expensive forms of short-term credit such as payday loans, installment loans, auto title loans, pawn loans, overdraft fees and late fees.

Read more: Employers block raises and bonuses amid pandemic

These are the most common questions and concerns HR and benefits personnel have raised, and all are easily answered:

1. Won’t employees never get ahead if their money is too readily available?
Employees are already drowning because pay timing does not coincide with expenses and bill due dates. EWA frees them to pay those bills on time, saving them $200/month in predatory loans, overdraft fees, and late fees.

Once cash flow aligns with expenses, they can begin getting ahead by saving and investing the money they used to spend on predatory loans. When people actually have excess cash flow, that’s exactly what they do with it. Employers can set limits on how much can be accessed per pay period.

2. We should not act as our employee’s bank. We would become their savings account that they can withdraw from whenever they are a little short.
The employer is not a bank. Wages are accessed from the EWA provider, not the employer. Also workers come up short not because of faulty budgeting, but because of the timing of pay.

Read more: Tackle growing healthcare costs with earned wage access

3. We can’t get employees to do their timesheets, so EWA won’t work for us!
Consider: if employees know they can access wages if and only if they do their timesheets, you might experience higher compliance rates. Updated timesheets is the only way accessible wages will update.

4. An advance isn’t helping people manage their money better, it’s crippling them.
It isn’t an advance. It is their money that they have already earned. Why should they have to wait two weeks for the money they earn each day? Labor is rendered in real time. Why not wages?

5. I don’t see how this is a benefit to anyone but employees.
EWA benefits employers via increased retention, engagement, and productivity. It also helps with recruitment. Seventy-eight percent of employees want a financial wellness benefit, such as on-demand pay.

6. I don’t have time to process on-demand.
You don’t process anything differently.

7. What happens when there is an adjustment to worked hours that the employee accessed?
As long as the updated hours belong to the current pay-period, most providers will recalculate the accessible balance automatically.

8. I’m concerned about cash flow if we pay employees throughout the month.
The EWA provider offers the accessed wages, not the employer.

9. I have a compliance concern that this is an advance or loan to the employee.
The CFPB issued an Advisory Opinion regarding the criteria necessary for an EWA program to NOT be considered credit. An Approval Order has also been issued stating which program(s) have been approved as a non-credit product by the CFPB.

10. This sounds like an advance loan, so what are the tax implications and due dates if you make funds available earlier? I would like to see an IRS ruling.
EWA is not a loan. It gives the workeraccess to wages earned but not yet paid on. Neither gross reportable or net received pay changes. No interest or fees are paid to the employer. There are no tax implications for either employer or worker.

11. My concern is if employee is taking advances, when their paycheck is processed, will they have enough for deductions, especially garnishments?
EWA is not an advance. It gives the worker access to wages earned but not yet paid on. It does not advance pay for hours that have not yet been worked. Depending on the provider, the amount of wages accessed is sent to the employer as a payroll deduction file, so the deduction is included with all other deductions, including garnishments.

12. Is this an offered benefit that can help with recruitment?
Yes. In today’s on-demand world, workers are increasingly asking for this benefit, especially Millennials.

13. Won’t this affect the P/L and creation of receivables in payroll accounts?
No. The EWA provider handles accessed wages, not the employer. There is no receivable because EWA is not a loan made by either the employer or anyone else.