EC Payroll with Earned Wage Access - supporting during the cost of living crisis

It’s the biggest development in payroll and it’s causing a stir but what is Earned Wage Access and how can it help enhance your employee’s experience and financial wellbeing?

Earned Wage Access (EWA) is a platform that allows employees to access their earned wages before their normal pay date. It does this by using payroll and time and attendance data to calculate how much money an employee has earned up to the point that they request to receive a part of their wages (in advance of payday). So, when an employee is hit with unexpected costs, there is a real benefit to them. Enabling them to avoid overdue payment fees or overdraft charges and overall reduce their financial stress.

Understandably, like any change to an established process, this new way of providing employees with their pay has piqued the interest across the payroll (and finance communities), we have identified the key themes below:

1. How does it actually work?

EWA works by connecting an employee’s payroll and time and attendance data (from your internal systems) via automated APIs to a platform which calculates how much money the employee has earnt up to that point in their pay cycle. If an employee requests a payment usually via an app, they will receive a part of what they have earnt with their pay being transferred to their bank account or a prepaid debit card. The total available is configurable by the employer (this is between 25 – 50%) to ensure the employee never spends more than they have earned. This approach supports employee’s financial wellbeing, helping to show the coloration between work and reward.

2. Is it morally right to provide employees access to their pay before payday?

The morality question is an interesting one. Particularly with the prevalence of payday loans and credit cards, people might ask, are we just perpetuating a negative cycle of debt for our employees? It’s a fair question, so let’s look at the context of how people have been paid over the years

Once upon a time it was commonplace for employees to be paid at the end of a day for the work they’d done (in some cases this still happens today). Over time this moved to wages being paid each week and, in many industries, there was a move to a monthly pay date that started becoming commonplace in the 1960’s, as it reduced business costs and helped businesses to profit off the interest.

Also, although it’s in the name, it important to remember that EWA, only gives access to money already earned. In that sense it is fundamentally different to pay day loans and credit cards. This is an employee’s money; they have worked for it, so why shouldn’t they be able to access it?

In that sense, the question of morality could also be asked this way, is it right for an employer to hold on to and employee’s money until the end of the pay period and for the employee to miss out of interest or paying off debt?

EWA gives employees choice, flexibility and visibility over their pay. It is a real benefit if employees need quick access to their earnings before payday, which reduces the possibility of individuals taking out high-interest payday loans or credit. And, when introduced with financial education EWA has been proven to help employees to avoid fees associated with overdrafts, overdue payments, and other financial pitfalls.

From what we know so far, the research shows that EWA doesn't encourage bad behaviours at all, but it can help prevent employees getting into bad financial situation. In fact, stress decreases for 77% of those using EWA and financial confidence improves, with 72% feeling more in control (*)

3. What are the tax and compliance implications?

This is one for those that like to know the finer, technical details and the good news is that from a payroll perspective there are no additional compliance implications for offering EWA, (other than ensuring employers are complying with relevant tax and employment laws but I’m sure you’re already doing this!). By properly integrating your chosen EWA into your payroll system there’ll be no additional work or checks for the payroll team.

From a tax perspective, EWA payments made to employees are generally considered taxable income and are calculated in the same way as basic pay. The portion of pay that the employee has chosen to draw down is deducted from Net pay automatically in your payroll system and paid over to the EWA provider.

It’s important to note that EWA requests are not loans they just restructure the frequency when someone is paid so they’re not subject to the same regulations as loans or other forms of credit. Introducing EWA would reduce the need for pay advances (if offered) which can be complex and time-consuming for payroll teams to manage.

4. And how does it positively affect the employee experience?

EWA is a valuable financial benefit that can help improve an employee’s wellbeing. It can even alleviate your employees’ financial stress, leading to increased productivity, better job satisfaction, and lower turnover rates. In turn, this means that as a business, you can improve your ability to attract and retain employees. This is what the research says:

• 77% of those using EWA stating that confidence improves, with 72% feeling more in control.
• 74% saying that access to their earned wages has helped reduce their financial stress
• And 59% saying that access to their earned wages motivates them to go to work.

By offering EWA to your employees, you show you care about their financial wellbeing, which is likely to increase employee’s overall engagement and satisfaction with the organisation. Higher employee engagement leads to lower turnover and reduced recruitment, onboarding, and training costs.

So, in summary, this is how EWA can elevate payroll’s role in the employee experience. With modern technology at our fingertips EWA is an opportunity Payroll to become a real differentiator in the employee experience, elevating it from simply a back-office task to a function that helps their organisation attract and retain the best talent.

For sure, its new, its different and it will raise questions. The fact of the matter is this is happening, its real and the evidence is, it supports an employee’s financial wellbeing. We all know payroll people are enthusiastic about getting things right for the people we serve, this an opportunity to go further and offer more than we can today in supporting their wellbeing

Do you want to be an advocate for your employee’s wellbeing? If the answer is yes, get in touch.

Co-authored by

Ned McEvoy, Head of Payroll and BPO at Veritas Prime

ned.mcevoy@veritasprime.com

Sharon Kirby, Senior Vice President at QRails

skirby@qrailes.com