Employers are looking for creative ways to retain and attract talent. An Early Wage Access (EWA) policy — a revolutionary employee benefits program that gives employees access to their paycheck within an hour of working a shift — could be just what gives companies the edge. In fact, companies that took advantage of these benefit programs saw a 19% lower turnover rate. Of those companies that have already added early pay access to their compensation packages, 89% of employees said they felt more motivated and productive at work when they had access to their pay before payday, and 74% said fewer unplanned ones to have absences. But given many states with onerous labor laws, what do employers need to know about early access to wages?
Early access to wages: what is it?
Early Wage Access or Earned Wage Access (EWA) is an innovative method of paying wages promptly after work or shortly thereafter. Traditionally, payroll accounting is usually carried out bi-weekly. But now, by connecting with EWA providers, employers can offer workers instant access to earned wages for hours already worked. Instead of waiting for their biweekly payday, an employee can access their earned salary within hours of work.
This program differs from the practice of payday loans. In EWA programs, employees have already performed the work for which they are paid. This program simply allows them to receive their earned compensation before their bi-weekly payday. EWA is administered through an EWA provider, which typically provides employees with access to payroll through a variety of means, including direct deposit, automated clearinghouse transfer (ACH), or a payroll debit card (ie, paycard).
From 2018 to 2020, EWA providers processed nearly $15 billion in early payrolls. We expect these numbers to continue to rise and options and how wages can be paid and claimed early will continue to evolve as fintech companies continue to improve and expand options. In this insight, we provide a high-level overview of EWA programs, the applicable legal framework, and five critical points employers should assess before implementing an early wage access program. Stay tuned for more insights on EWA and the use of paycards, how EWA can work for employees seeking cryptocurrency compensation, and more.
Is EWA regulated?
EWA is an emerging practice that is currently lawful – as long as it is properly implemented. These programs have met opposition from consumer groups, and a handful of states have enacted regulations in response to the growing trend. More legislation regulating EWA programs is expected to follow as it has the attention of Congress and state legislatures. However, no state has outright banned the practice. That’s partly because lawmakers and regulators have determined that these programs benefit workers, particularly low-income earners who live paycheck to paycheck.
For example, California — following the passage of a new consumer financial protection law — recently reached an agreement with five EWA providers that effectively allows this type of business to continue operating in the state. In turn, these companies share information and access with state officials to provide a better understanding of the products/services and the risks and benefits to California consumers and employees. It will be important to follow the expected developments arising from this arrangement.
At the state level, New Jersey, New York, Nevada, South Carolina, Georgia and North Carolina have adopted EWA regulations. Utah and California have attempted to legislate but have not yet been able to pass them because the proposed bills were too extensive. Although there are some variations between the state enacted laws, all generally require the following:
- the employer has a contract with an EWA provider that allows the provider to verify an employee’s earned income;
- the EWA provider pays the employee a percentage of earned income prior to the date the employer is due to otherwise pay the employee, and
- the amount of early earnings will be reduced or withheld from the employee’s next regular paycheck.
Interested? 5 Key Considerations
EWA is becoming increasingly popular as an attractive employee benefit. This may not come as a surprise considering there are currently 56 million millennials and 65 million Gen Z workers. Debate is already fierce as to whether this actually benefits workers, but it is clear that many workers want, and may soon expect, this benefit as part of their employment package. In fact, more than 78% of Americans live paycheck to paycheck, leading to increased pressure to make plans to make ends meet between paydays.
If you run a business that employs low earners or younger generations who want their money without delay, you can add EWA. However, depending on which state you operate in, there are a few things to consider. This article addresses five key considerations – but note that this list is not exhaustive and your company should consult your payroll and hours advisor before taking the plunge.
Consideration #1: You must comply with state and federal wage and hour laws
Because EWA programs currently reside in a gray area — unregulated in most states and still considered an emerging practice — compliance with existing workplace laws is of paramount importance. In particular, you must be careful to comply with state laws, including but not limited to those relating to:
- wage allocations. In general, some state-specific laws govern assignment of wages. California, for example, prohibits them unless permitted by law. An assignment of wages occurs when an employer pays an employee’s wages to a third party. At this time there is no statement from any law or authority specifically addressing this issue in the context of EWA. However, wage allocations are a potential area of concern.
- wage deductions. Many states strictly limit wage deductions to certain statutory amounts and circumstances. As a general rule, deductions cannot be made unless required by law (e.g. for payments such as taxes, health insurance premiums, etc.) or with express written permission (for limited purposes). In states that prohibit or limit deductions from wages, you should ensure that workers are paid their full wages and are not charged for claiming the EWA benefit. For example, you must review the EWA program to ensure wages can be drawn without fees. Accurate payroll. The structure of an EWA program must ensure that the benefit does not result in improper payment of wages. Data management is extremely important as hours worked and wages earned must be properly and accurately recorded and reported to the EWA provider.
- No payday loans. Make sure you only give employees access to wages they have already earned. More than a dozen states ban payday loans and others regulate the practice. Therefore, it is important to ensure that the EWA program is not considered a loan.
Consideration #2: Be aware of privacy concerns
Employee personal data is subject to a minefield of laws and regulations. Additionally, under current EWA state regulations, an employer is prohibited from sharing employee payroll/income data with an EWA provider unless they follow certain rules. Use caution when sharing employee data and information, and recognize that employee consent is absolutely necessary.
Consideration #3: Consider the impact on benefits
Paying for services with EWA and/or Paycards is an issue that needs to be carefully addressed. For example, traditional and existing employee benefit plans and payroll issues may arise.
Consideration #4: You must also comply with state and federal laws regarding paycards
The use of Paycards to pay wages is fairly regulated by the federal government and most states. When an EWA program offers wage access through paycards, compliance with these laws is required in addition to those governing the practice generally.
Consideration #5: Develop strong exemption language for contracts with EWA providers.
There are penalties for EWAs who do not comply with applicable regulations. These are primarily aimed at the service provider as the lender, but the wording of the exemption in the contract between the employer and the EWA provider is important.
EWA employee benefits programs can give companies the advantage to attract and retain talent and may soon be expected by the younger generations within the workforce as well. Compliance and lawful written policies and their implementation will be a key to success. Stay tuned for more insight into the likely evolution of this practice, including how EWA programs may be rolled out along with paycards and the control regulations, and how we expect EWA to interact with cryptocurrency.