In what continues to be dubbed the Great Resignation, employers are looking for creative ways to retain and attract talent. An Early Wage Access (EWA) policy – a revolutionary benefits program that gives employees access to their salary within an hour of a shift – may well be what gives the advantage to businesses. In fact, companies using these benefit programs experienced 19% lower turnover rates. Among companies that have already added early payday access to their compensation programs, 89% of employees said they felt more motivated and productive at work when they had access to their payday before payday and 74% said have fewer unplanned absences. But with many states plagued with onerous employment laws, what should employers know about early access to wages?
Early access to salaries: what is it?
Early Wage Access or Earned Wage Access (EWA) is an innovative method of quickly disbursing wages at or shortly after the end of the working day. Traditionally, payroll is run most often every two weeks. But now, employers – by partnering with EWA suppliers – can offer employees immediate access to earned wages for hours already worked. Rather than waiting for their bi-weekly payday, an employee can access their earned pay within hours of completing their job.
This program differs from the practice of payday loans. With EWA programs, employees have already done the work they are paid to do. This program simply allows them to receive the compensation they have earned before their bi-weekly payday. The EWA is administered through an EWA provider who typically provides employees with access to payroll through a number of means including direct deposit, Automated Clearinghouse Transfer (ACH), or a debit card. payroll debit (i.e. a payment card).
From 2018 to 2020, EWA vendors processed nearly $15 billion in advance payroll transactions. We anticipate that these numbers will continue to grow, and that the options and how salaries can be paid and accessed early will continue to evolve as fintech companies continue to improve and expand their options. In this overview, we will provide a general overview of EWA programs, the applicable legal framework, and five key questions employers should assess before implementing an early wage access program. Stay tuned for more information on EWA and payment card usage, how EWA can work for employees seeking cryptocurrency compensation, and more.
Is the EWA regulated?
EWA is an emerging practice that is currently legal – as long as it is properly implemented. These programs have drawn some opposition from consumer advocacy groups, and a handful of states have passed regulations in response to the growing trend. Other laws regulating EWA programs are expected to follow as they attract the attention of Congress and state legislatures. However, no state has outright banned the practice. This is partly because lawmakers and regulators have found that these programs benefit employees, especially low-wage earners who live from paycheck to paycheck.
For example, California – after passing a new consumer financial protection law – recently entered into an agreement with five EWA providers that effectively allows these types of businesses to continue operating in the state. In return, these companies will share information and access with state officials to provide a better understanding of the products/services and the risks and benefits for California consumers and employees. It will be important to follow the anticipated developments that will arise from this arrangement.
At the state level, New Jersey, New York, Nevada, South Carolina, Georgia, and North Carolina have adopted EWA regulations. Utah and California have attempted to legislate, but to date have not passed anything because the proposed bills were too broad. Although there is some variation between enacted state laws, each generally requires that:
- the employer has a contract with an EWA provider in which the provider is able to verify an employee’s earned income;
- the EWA provider pays a percentage of earned income to the employee prior to the date the employer is otherwise expected to pay the employee, and
- the amount of earned income prepaid is reduced or withheld from the employee’s next regular paycheque.
Interested? 5 key considerations
EWA is becoming increasingly popular as an attractive employee benefit. This is not surprising given that there are 56 million Gen Y employees and 65 million Gen Z employees in the current workforce. The debate over whether this actually benefits employees is already fierce, but what is clear is that many employees want and may soon expect this benefit as part of their jobs. Indeed, more than 78% of Americans live paycheck to paycheck, leading to increased pressure to come up with plans to make ends meet between paydays.
If you run a business that employs low-income earners or younger generations who want their money fast, you might consider adding EWA. However, depending on the state you are operating in, there are several things to consider. This article covers five main considerations – but recognize that this list is not exhaustive and your organization should consult with your lawyer regarding salary and hours before taking the plunge.
Consideration #1: You will need to comply with state and federal wage and hour laws
Since EWA programs currently exist in a gray area – unregulated in most states and still considered an emerging practice – compliance with existing workplace laws is of the utmost importance. In particular, you must ensure that you comply with state-specific laws, including, but not limited to, those relating to:
- Salary assignments. Typically, some state-specific laws govern wage assignments. For example, California prohibits them unless permitted by law. A wage assignment occurs when an employer pays an employee’s wages to a third party. At this point, there is no law or agency advice specifically addressing this issue in the context of the EWA. However, salary assignments are a potential area of concern.
- Salary deductions. Many states strictly limit deductions from earned wages to specific amounts and circumstances defined by law. The general rule is that deductions can only be made if specified by law (for example, for payments such as taxes, medical insurance premiums, etc.) or with express written permission (at limited purposes). In states that prohibit or limit payroll deductions, you must ensure that employees receive their full pay and are not charged for taking advantage of the EWA benefit. For example, you will need to review the EWA program to ensure that salaries can be obtained without incurring any fees. Correct payment of wages. The structure of an EWA program must ensure that the benefit does not result in the irregular payment of wages. Data management is extremely important, as hours worked and wages earned must be properly and accurately recorded and transmitted to the EWA provider.
- No payday loan. Be sure to only allow employees to access previously earned salaries. More than a dozen states ban payday loans and others regulate the practice. Therefore, it is important to ensure that the EWA program is not considered a loan.
Consideration #2: Be aware of data privacy issues
Employee personal data is governed by a minefield of laws and regulations. Additionally, under current state EWA regulations, an employer is prohibited from sharing employee salary/income data with an EWA provider unless they follow certain rules. You should be careful when sharing employee data and information and recognize that employee consent is absolutely necessary.
Consideration #3: Take Note of Benefit Implications
Paying for benefits using EWA and/or payment cards is a matter that needs to be handled carefully. For example, traditional and legacy benefit plans as well as payroll and deduction issues may arise.
Consideration #4: You must also comply with state and federal payment card laws
The use of cash cards for payroll is fairly regulated by the federal government and most states. If an EWA program offers access to wages via payment cards, compliance with these laws is necessary in addition to those that regulate the practice in general.
Consideration #5: Develop strong indemnification language for contracts with EWA vendors.
Sanctions are provided for EWAs that do not comply with applicable regulations. These are primarily for the service provider as the lender, but the wording of the indemnity in the contract between the employer and the EWA provider is important.
EWA’s benefits programs can give companies the edge in attracting and retaining talent, and may also soon become expected by younger generations within the workforce. Compliance and legal written policies and their implementation will be key to success. Stay tuned for additional information on how this practice is likely to evolve, including how EWA programs may be rolled out with payment cards and screening regulations, as well as how we expect this to happen. that EWA interacts with cryptocurrency.