To many employees, payday can feel like a relic from decades past.
In many countries, employees still get their salaries once per month. But that kind of restriction on personal cash flow doesn’t align with the way people spend their money. It can feel like an artificial burden, a vestige of the way things used to be done.
There’s plenty of research to suggest that giving employees more control over when they get paid — namely through on-demand payments or earned wage access (EWA) — enhances a company’s employee experience. It can reduce a worker’s individual financial stress and, ultimately, be a key tool in talent retention.
Building out such a capability is within the scope of an innovative company’s leadership. But earned wage access comes with certain challenges, too.
Here is what executives need to know about rolling out earned wage access to a team of global employees.
How earned wage access works
Earned wage access and on-demand payment processes allow employees to receive their salaries as they accrue.
Instead of waiting until the end of the month, an employee with access to on-demand payment could withdraw earned money from their salaries as needed. Whatever they had earned for that month of work would be eligible for withdrawal.
Contrast this with how salaried employees normally shore up their personal cash flow: usually via credit or short-term lending. This pushes the high cost of borrowing money onto the individual employee.
Earned wage access, on the other hand, is less risky for the employee. Most EAW providers charge a small fixed amount to the employee for the withdrawal, and employees cannot withdraw more than they have earned.
There are dozens of on-demand pay providers. Two such examples include Revolut On-Demand Pay, which charges account holders a £1.50 fee per withdrawal, and ZayZoon, which charges users a $5 fee per withdrawal.
Providers are exploring alternatives to these fees, which can add up if a person makes frequent withdrawals. ZayZoon lets employees take out retailer gift cards in lieu of cash, Kate Fitzerald at American Banker reports.
The tech capabilities a global employer needs to introduce EWA
As we have written before, global payroll teams need two things to support earned wage access:
- Flexible, agile technology that’s built for rapid processing.
- Standardized payroll data.
Robust data and a secure payroll platform would make the integration of a new EWA tool much easier. Without that foundational technology in place, knowing where to start could be daunting.
How earned wage access impacts employee retention
Many benefits managers and HR leaders are finding that helping employees with their financial wellness helps those folks be more productive at work, and more apt to stay with their employers.
“There has been an enormous focus on employee retention during the past few years,” Darren Cho, VP of product at EWA provider DailyPay, tells PaymentsJournal. “Different employees have different sets of ideas about how and when they want to get paid and how they want to manage their money. Offering them flexibility in this area increases employee engagement and satisfaction.”
A 2021 study by the Mercator Advisory Group on behalf of DailyPay found that EWA significantly boosted retention rates in fields that see especially high rates of turnover. Specifically, it increased the average number of days an employee stayed in jobs:
- Nursing home employees stayed 73 percent longer.
- Transportation employees stayed 68 percent longer.
- Call center employees stayed 51 percent longer.
“Financial peace of mind creates a better employee experience, from more positive interactions with co-workers and customers, to more equitable work-life balance,” DailyPay writes. “Employees are less stressed and stay longer with a company, regardless of industry.
How companies benefit financially from earned wage access
Beyond better employee retention — already an important goal — financial executives are interested in earned wage access as a safeguard against wage inflation, says Courtny Cloeter, chief revenue officer of OneSource Virtual.
“Employers are looking for meaningful ways to help their employees, and new offerings like EWA go a long way in helping to remove stress and retain their employees,” Cloeter tells CFO.com.
“Companies can’t afford to absorb 10% wage inflation annually or meaningfully pass along these costs to their customers. ... Companies have turned to programs like financial wellness to help them through this difficult period.”
Financial wellness programs have emerged as an effective way for companies to reap long-term labor savings via upfront investments. According to financial wellness platform provider Enrich, these kinds of programs lower the healthcare costs per employee, provide pathways toward earlier retirement, and reduce worker absenteeism.
Earned wage access can be a pillar of a larger financial wellness program, or it can stand on its own as an employee benefit.
Furthermore, earned wage access can unlock direct savings by “slashing company payroll costs involved with cutting paychecks and/or direct deposit,” writes Brian Bingaman, who researches and reports on trends in accounts payable and CFO management.
Challenges: Earned wage access across a global workforce
Some executives are hesitant to adopt EWA because of perceived complexity. For one thing, they might have to set up a new integration with the EWA provider. Also, they’re unsure whether EWA would expose the company to payroll compliance issues, or be more expensive than they’d anticipated.
Further, in the United States the Consumer Financial Protection Bureau has issued advisories to clarify the difference between earned wage access and credit, the latter of which is regulated by the Truth in Lending Act of 1968. Retail Brew’s Maeve Allsup writes that the CFPB has created two categories for the sake of clarification: “Covered EWA Program Providers” and those that aren’t covered and thus come under the regulation of the Truth in Lending Act.
To be a covered EWA program provider, withdrawals must be free for workers, and those workers must only be able to access accrued wages. For any EWA service that does charge fees, then, there are additional compliance requirements specific to the United States. As more countries investigate these programs, more regulatory hurdles will emerge globally.
There are technological solutions to all of these challenges, too. And as Deloitte’s Pete DeBellis writes, companies should consider whether it’s worth clearing these hurdles. “While local statutes may dictate the baseline for how often organizations need to pay workers, emergencies and unexpected financial needs often can’t wait until payday,” he writes.
“As the competition for talent rages on and challenges to individual worker wellbeing show no signs of relenting, perhaps it is time to consider earned wage access, especially if such a program can be implemented in an easy and cost-effective manner that doesn’t sacrifice user experience.”
Payroll innovations like earned wage access are the kinds of capabilities the Payslip platform was built to facilitate. To learn more, book a tour of our platform today.
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