According to PwC's employee wellness survey, 47% of employees are stressed about their financial situation. Paydays don't always align with when bills are due, credit card debt is at an all-time high, and very few workers have enough saved to cover a $400 expense.
As more employees feel the financial stress of high living costs and inflation, more companies feel responsible for offering support. One way that's gaining traction and rising in popularity is instant wage access.
A faster way to get paid
Earned wage access (EWA) allows employees to withdraw their money directly from their paychecks ahead of their designated payday in exchange for a small fee.
Traditionally, this benefit was geared toward hourly retail, restaurant, and hospitality workers. Companies, including Walmart, Dollar Tree, and McDonald's, have offered this benefit to workers for years, but now, more salaried jobs are considering adding it. Most of the demand for EWA comes from younger workers, mainly Gen Z workers.
According to a 2022 survey from Aquent, about 57% of respondents said that instant pay benefits were slightly or very important to them. Most respondents (83%) were workers ages 18-24. Gen Z are used to being able to send money instantly to friends and family via Zelle and Venmo and now expect the same type of instant payment from their employers.
Why employees love and want more instant wage access
The main draw for instant wage access is faster access to cash. According to a recent LendingClub report, 63% of Americans live paycheck to paycheck, with just one-third having enough funds to cover a one-time, unexpected $500 expense. Of those earning more than six figures ($100,000), nearly 50 percent are reportedly living paycheck to paycheck. EWA offers employees more comfort in knowing that they can get money when they need it ahead of time, especially when they have a surprise bill.
It also offers employees an alternative to high-cost forms of credit, such as payday loans, with little or no fees and without a credit or income requirement. With EWA, employees can focus more on building a habit that helps them grow their savings and build an emergency fund. Employees feel more financially stable and have more control over their earnings without using credit cards and increasing their debt.
Why more employers are considering offering EWA
Instant wage access can be a very valuable employee benefit. For one, it offers companies a competitive advantage in attracting talent. If employees value EWA, they will be more likely to choose a company offering it as an employee benefit over those that do not.
Instant wage access also allows organizations to help their employees' financial wellness, especially as more feel a responsibility to help their employees. According to the Bank of America Workplace Benefits Report, 80 percent of employees think employers should support financial wellness. In comparison, 62 percent of employers feel they need to offer support to their employees.
Moreover, EWA increases employees' productivity and retention. When employees know their financial stresses are taken care of, they can bring their best selves to work. A 2021 study from Ceridian indicated that 78 percent of Millennial and Gen X employees said having EWA would boost their company loyalty. Another survey found that EWA improves retention among younger workers by almost 36 percent.
Case and point: Fast-casual restaurant chain Honeygrow has offered instant pay to its nearly 1,000 employees through the vendor DailyPay since August 2022. Almost 65 percent of employees at Honeygrow use DailyPay for instant wage access, with some restaurants seeing nearly 90 percent utilization.
Link, request, deposit. It's that simple.
Employers can use an instant wage technology provider to install an integrated solution that sits on top of their existing payroll and allows employees to access their wages before payday. Some big EWA players are Payactiv, DailyPay, and Everee, but there are dozens of software solutions employers can choose from.
Here's how it works:
- Once installed and implemented, employees can download the app and link their bank account. Since the app integrates with the employer's payroll system, employees can see how much of their paycheck they've earned at the end of each payday.
- From there, employees can request part of their paychecks. Most apps limit the amount you can request each day or pay period. Your employer may also determine how much you can access as well.
- Once you agree to the terms, including potential fees, your employer will deposit the funds into your account within a business day or two. Fees may be deducted from the total before you get it or withdrawn with repayment.
- Employees will then get the rest of their paycheck on payday, with the amount they took out in advance deducted from their paycheck.
Challenges & risks to consider
Implementing EWA software can take time and effort for organizations with an older technology infrastructure. Moreover, it can add a layer of complexity to employer's budgets, meaning organizations may have to part with cash earlier than during a regular payroll cycle.
From a tax and legal perspective, employers should consider specific tax laws, as cash moves through the organization much sooner. State regulations vary regarding EWA. For example, states like Missouri and Nevada have implemented regulatory standards and licensing requirements for companies providing EWA services. Additionally, these laws exempt EWA services from respective state laws that regulate loans and money transmission; EWA service providers are not regulated as lenders or money transmitters.
Help employees combat financial stress
EWA is no longer just for hourly workers. Employees, especially younger employees, seek instant wage access to pay their bills and get a better handle on their finances. While it may be a costly investment, organizations will have a differentiated benefit they can offer to attract and retain talent that supports their employees' financial needs.
Learn more about how PTO Exchange can help companies develop financial wellness programs by requesting a demo today.
Published on Dec 08, 2023 by Josh Reinhard
