Is Earned Wage Access A Wolf In Sheep’s Clothing?

• Implemented in America in the 2010s, earned wage access is a service that some employers provide to employees to allow them to access earned wages before a paycheck has been issued.
• Without access to other financial literacy tools, Earned Wage Access is merely a band-aid for a much larger problem.
• Here are some strategies that can be used in conjunction with Earned Wage Access to help employees experience financial wellness.

In 2022, American workers dealt with levels of inflation unseen since 1981, increasing financial instability and resulting in 63% of workers living paycheck to paycheck — up 6 percentage points compared to the previous year when 57% of workers were doing so. 

While inflation has now stabilized enough that the Fed has taken a pause on raising interest rates, it’s still a pressing issue for the many families struggling to pay their bills. 

This has led countless people to switch jobs hunting for higher pay, continuing the Great Resignation, and leaving companies to struggle to fill roles. Offering remote or hybrid positions has been one way to draw employees in, but that’s not always enough to keep current staff. In these trying financial times, one benefit employees need most is financial literacy education, and options for help when they need it. 

Thankfully, with the influx of digital courses and seminars, financial literacy has never been easier to attain.

Unfortunately, some companies are taking an easier route by offering tools that only serve to ease the immediate pain of the issue, such as earned wage access, without addressing underlying issues. At best, this is careless, at worst, it’s nefarious.

Understanding earned wage access

Implemented in America in the 2010s, earned wage access (EWA), or occasionally referred to as on-demand pay, is a service that employers provide to employees to allow them to access earned wages before a paycheck has been issued.

Employees can use an EWA service to take a portion of their wages immediately, without waiting for regularly scheduled payday.

This service is provided internally or often by a third-party provider and functions by either integrating with the time clock the business is using or estimating the number of hours that you’d worked that week. Then the service will give the employee an amount of money that they can withdraw should they choose.

EWA rose to popularity in the 2010s with smaller companies offering the service, but exploded in popularity when companies like Uber announced an “Instant Pay” program for its drivers. Soon, companies like Walmart and McDonald’s were following suit.

It’s worth noting that these companies are typically using third-party applications to provide this service for their employees.

While earned wage access might be invaluable in certain emergencies or unexpected situations, the regular use of earned wage access — especially if employers are offering earned wage access without any other financial instruments — can be detrimental long term.

Without access to financial literacy education, workers using earned wage access are likely just continuing the cycle of living paycheck to paycheck. The ability to access capital is great — but not when it comes at the expense of the workers.

Using earned wage access in conjunction with other financial literacy tools

Not all businesses use third-party applications or platforms that might charge fees to provide this service to employees. The businesses that provide earned wage access at no cost to their employees aren’t actively hurting them in the way some of the larger corporations are, but without additional information, they aren’t helping either.

Instead of only offering earned wage access, or offering earned wage access with footnoted text-only lessons about financial literacy, companies need to be taking extra steps to ensure their workers are taken care of, such as:

1. Budgeting and financial planning tools
2. Debt management tools
3. Financial education resources
4. Cultivating a workplace that values financial security

Budgeting and financial planning

Often, employees just aren’t aware of how to spend money in any way other than how they’ve been spending for years.

With budgeting and financial planning courses, online presentations, or virtual seminars, employees can get a feel for what their monthly budget needs to look like.

Knowing that you need to only spend X amount of money in a given week to effectively hit your goals is excellent motivation and makes it considerably easier to save money and cut out extraneous purchases.

Larger companies will occasionally introduce earned wage access programs that have added budgeting and financial planning widgets or pages, but they spend so long focusing on the earned wage access aspect of the service that the budgeting and financial planning gets swept under the rug.

Debt management

Partially due to inflation and partially due to stagnating wages, debt has taken a huge toll on workers from all demographics.

In a recent Workplace Wellness Survey conducted by the Employee Benefit Research Institute, or EBRI, 80% of respondents called their current debt “a problem” and the percentage of households highly concerned about their financial well-being shot from 29% in 2021 to 34% in 2022.

To combat this, employers can provide debt management resources like counseling or consolidation services to help their employees get back on track.

Debt counseling might be small online seminars or virtual meetings, but speaking with another professional about the best way to manage debt makes it an easier problem to tackle.

On the other hand, debt consolidation services are a brilliant way to marry debts, preventing employees from making several payments a month and often, reducing interest payments.

The key to debt consolidation is ensuring that employers are using a high-quality third-party provider.

Once an employer has decided on a provider, educated their employees about debt consolidation and the services provided, and provided access to the service, that employer should continuously monitor the service, checking to see if there are any improvements that could be made.

Financial education resources

Some employees might not understand financial concepts like credit scores, interest rates, or debt management. Unfortunately, these are the individuals that are at the highest risk of being taken advantage of.

For employers, all you need to offer is a glossary of online resources, free workshops, and other informative information. If the final point on this list is handled effectively enough, employees will be more than willing to educate themselves, they’ll be excited.

Financially secure workplace

Toxic workplaces are one of the quickest ways to decimate employee retention, destroy productivity, and build a poor business reputation.

There are plenty of steps you can take to rid your workplace of some of the more egregious kinds of toxicity, but what about the toxicity that isn’t as loud and in-your-face?

What about the kind of toxicity that leads to employees leasing cars that are out of their price range? What about the kind of toxicity that causes workers to utilize payday loans to keep up with their peers?

When workers are constantly in an environment that makes them feel compelled to “keep up with the Joneses,” due in part to the resurgence of “grind/hustle culture” and due in part to America’s never ending obsession with status, it can feel impossible to save money.

Alternatively, a workplace that values financial security and financial education makes it much easier. 

When your peers are worried about how prepared they are for the unexpected as opposed to being worried about what car they’re driving and where they’re seen, you don’t have to deal with the incessant pressure of fitting in when you can’t afford to do so.

Using earned wage access responsibly

Despite the sometimes predatory nature of earned wage access programs, being able to quickly access money in an emergency is a lifesaver.

The key is to help employees determine what constitutes an emergency, and help them avoid them whenever possible.

Knowing that it’s available is a kind of backup plan, becoming financially literate enough not to need it is true security.