The Earned Wage Access Trend: What It Is and Why More Companies Are Utilizing It

A persistently tight labor market and continually shrinking workforce mean employers need to get creative in their efforts to find and retain skills.

Earned Wage Access (EWA), an innovative employee benefit program created by Payactiv, has been gaining attention and traction with each passing year.

Let’s take a closer look at Earned Wage Access, understand what it is (and isn’t), and consider why it makes business sense to add it to your suite of employee benefits.

What is Earned Wage Access?

EWA is a mechanism through which employees can access the wages they’ve already earned. It’s a revolutionary departure from the traditional (and, as some would argue, antiquated) biweekly or monthly payroll model.

EWA is particularly valued by lower-income or hourly workers who often live from paycheck to paycheck. In 2019, US employees paid an hourly wage for their services accounted for 82.3 million workers 16 years and older, representing well over half of all wage and salary workers. In 2020, of all workers paid hourly rates, 2% of women and 1% of men had wages at or below the prevailing federal minimum.

Hourly workers are the backbone of the economy, but all too often, their dedication and accomplishments go unnoticed.

EWA offers them timely and dignified access to liquidity. With this, a single mother can pay for daycare between paychecks and a healthcare worker can cover unexpected expenses like a car repair.

What Earned Wage Access is Not

Earned Wage Access programs differ from the practice of payday lending. The key difference is that with EWA programs, employees have already performed the work for which they’re being paid. It’s their money. It’s not a loan.

EWA programs simply give employees the freedom to collect some or all their earned wages ahead of their traditional payday. They can instantly transfer their earned wages to their bank account or card.

The Rise of Earned Wage Access

While EWA has only emerged within the last ten years, EWA platforms have quickly gained widespread attention, and the number of providers has grown exponentially. In the early days of EWA, most providers were early-stage startups.

Now, there’s a diverse group of players operating in this marketplace, and providers include HR platforms and established financial services incumbents.

EWA’s popularity shows no signs of waning. One industry analyst estimates that nearly 55.8 million EWA transactions (totaling $9.5 billion) were facilitated in 2020. This compares with 37.2 million (totaling $6.3 billion) in 2019 and 18.6 million (totaling $3.2 billion) in 2018

How EWA Works

Earned Wage Access payments are securely administered by EWA providers through various means, including direct deposit, automated clearing house transfers, or a payroll card.

The best EWA providers facilitate the smooth and speedy transfer of funds through API integration with the organization’s payroll and HR management systems so that employees’ earnings are automatically available in a mobile app. This also ensures that the employer can make all necessary payroll deductions before making the earned wages available and that all accessed amounts are deducted as a part of the standard payroll process.

How EWA Benefits Employers

While employees need little convincing of the value of EWA on-demand pay, some employers might be a little skeptical at first. If you’re one of them, read on.

Todd Baker, a research fellow at the Harvard Kennedy School of Government, conducted a landmark study on the impact of EWA on businesses and their employees. After an in-depth analysis of over 6,700 individuals across six businesses, his research found that EWA increases employee productivity, engagement, and morale.

Let’s take a more detailed look at some of the outcomes you can look forward to if you decide to add EWA to your employee benefits package:

Attract Scarce Talent

According to a 2019 study, more than 90% of employees are interested in working for a company that offers EWA. Clearly, providing employees with an on-demand pay option is an important benefit that can make you stand out from your competition and significantly increase your volume of job applicants.

Reduce Staff Turnover

According to a Gallup study, employee turnover costs businesses in the US a trillion dollars every year. Payactiv EWA users have shown to be more than 30% less likely than non-users to leave a company.

With an eNPS score of 84.7, most Payactiv users are either likely (11.3%) or very likely (73.4%) to recommend their employer to their friends. Since the average cost of replacing a single employee now exceeds $4,000, a marked reduction in turnover means millions of dollars in savings for businesses.

Less Absenteeism

When people are worried about their finances, they may lose sleep or simply struggle to find the motivation to get up and go to work.

When certain people are regularly absent, it’s not just inconvenient for their employer; it can negatively affect the morale of their colleagues required to pick up the slack on short notice.

Increase Employee Financial Wellness

When employees have access to on-demand pay, they’ll be less inclined to resort to payday loans or overdrafting on their bank accounts where they’ll be forced to pay expensive fees. While taking out a payday loan might seem like a good idea when someone is strapped for cash, if not careful, it can result in a debt cycle that’s difficult to escape from. To illustrate just how precarious payday loans can become, just consider these statistics:

• The typical payday borrower is in debt five months out of the year
• 58% of payday loan borrowers have trouble meeting monthly expenses
• Only 14% of borrowers can actually afford to pay back their loans
• The average annual percentage interest rate (APR) for payday loans is 396%

By offering EWA, you can safeguard your employees from cyclical debt traps and provide a pathway to financial stability.

Lower Healthcare Costs

Financial stress shortens people’s lives, worsens their health, and impairs their decision-making.

When employees have access to a low-cost fintech solution like Payactiv to help with short-term, small-dollar financial shocks, it materially improves their overall health and results in fewer costly doctor visits for health issues connected to financial stress.

Payactiv: A Recognized Pioneer in EWA

Payactiv was founded in 2011 to help companies provide employees with faster access to their earned wages. EWA is now live in 1500+ businesses and used by millions of employees at businesses.

We process employees’ EWA payments in several ways: the funds can be loaded onto a debit or prepaid card, transferred to their bank account, or even picked up as cash at Walmart. Alternatively, employees can use their earned wages to pay for services like Uber and Amazon or pay their bills directly in the app.

In addition to EWA, our all-in-one Livelihood platform offers a suite of services aimed at helping your employees fully engage in both work and life. We take a holistic approach to improving financial wellness and increasing employee satisfaction through complementary savings and budgeting tools, bill payment, financial-health measurement, and a discount marketplace.

Payactiv is a Public Benefit Corporation and Certified B Corp and the winner of the American Business Awards Company of the Year for Financial Services award, the Innovative Payments Association’s Consumer Champion award, a Finovate winner and finalist, and the recipient of numerous best-in-class awards in both FinTech & HRTech.

Partnering with Payactiv for EWA is the sensible – and responsible – path to better recruitment, retention, and engagement, all at ZERO cost to you.

Learn more about Payactiv’s services, or get in touch today.