Getting paid on a daily basis is not a new concept. Many Americans, including waiters, taxi drivers, and bartenders, have a habit of getting paid at the end of their shift. Providing Access to Earned Wages (EWA) recognizes that life passes and an employee may need quick access to the money they’ve already earned, ahead of payday. Life doesn’t always break down perfectly into weekly or fortnightly calendars.
I recently had the privilege of testifying before the House of Commons Financial Services Committee Financial Technology Working Group on how EWA programs give employees the ability to immediately access the salaries they have earned and how they have become an invaluable tool for millions of American workers managing their personal finances during the pandemic.
For many workers, the due dates of invoices and scheduled paydays don’t always match. A 2012 study by Financial health network found that 38% of respondents reported time lags between their income and expenses.
In 2018, before the start of the Covid-19 pandemic, the Federal Reserve released its Survey of Household Economics and Decision Making, which found that 40% of Americans would struggle to find $ 400 to pay an unexpected bill. EWA offers a low cost option for employees who need to cover an unforeseen expense between pay days. With advancements in technology and direct deposit, employers can offer employees access to their earned wages at little or no cost.
Obstacles can be overcome
According to Consumer Financial Protection Bureau, several hurdles prevent businesses from implementing shorter pay cycles for their employees, including cash limitations for businesses that depend on incoming payments and receivables, which must be processed and filed.
April from the Financial Health Network report on EWA has found that financially distressed consumers can consider a variety of very expensive options, including title, payday, or pawnshop loans. The FHN report and an earlier study by Mercator Advisory Group, found that the average amount paid by a consumer by EWA was less expensive than all the other options.
In addition, as many employers know, and many studies have found, employees who have access to EWA have more stability at work and are less likely to quit, which in turn helps employers retain employees.
EWA products are not loans or credits
As with any new product that enters the market, consumers need to be educated so that they understand how this product works and its benefits.
First, the EWA is generally made available to workers without recourse and the use of the product is not reported to credit bureaus.
Second, EWA suppliers take the appropriate steps to validate the hours worked by a participating employee and provide the EWA based on those wages earned. This protects against loopholes in withholding taxes for things like taxes and benefits. It also ensures that the employee will receive money on payday.
Finally, it is extremely important to note that EWA products are fundamentally different from payday loans because EWA is not a loan or a credit. It is a new and distinct product that stands on its own.
I agree with the two former CFPB directors — Richard Cordray and Kathy Kraninger — who often disagreed, but each took concrete steps to support EWA when he ran the office.
In 2017, Cordray exempted employer-sponsored programs from its 2017 pay rule when it declared the rule “Excludes certain new “fintech” innovations from coverage, such as certain free advances and advance payment programs on earned wages when offered by employers or their business partners. ”
In 2020, Kraninger relied on Cordray’s foundation when she issued an advisory opinion explaining that some EWA programs are not credited. Together, they recognized the potential of EWA to help employees manage their personal finances and avoid more expensive alternatives.
Primary workers, adolescents, blue collar workers and single parents do not always have easy access to credit or other forms of short-term liquidity. EWA offers an affordable and flexible option for employees of all stripes who want to manage their personal finances responsibly.
We are still learning lessons from the pandemic, but hopefully we can all agree that real-life problems require concrete solutions in real time. EWA solutions empower employees by giving them an additional tool in their financial toolbox, allowing them to access their income quickly, efficiently and with dignity.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
Brian tate is President and CEO of the Innovative Payments Association.