Why Earned Wage Access Is Taking off

Enabling workers to access their wages ahead of payday is gaining popularity among employees and employers alike.

Hourly-wage employees and gig workers incur unexpected expenses between paychecks, such as a home or auto repairs or medical bills, for which they don’t have the cash. Their choices are taking out a payday loan or paying the bill with a credit card. Both options increase their debt load. Or they can wait until their next pay day and pay the bill late, for which they incur a late fee.

It’s no wonder, then, that payroll advances have grown in popularity in recent years. The advances, distributed through a digital option called earned wage access, allow hourly and gig workers to tap a portion their wages outside a normal pay period at a nominal fee or at no cost.

That’s a big plus for hourly workers who need cash to cover unexpected expenses. Some 80% of these workers have less than $500 in savings, according to Branch, a provider of financial services including earned-wage access, or EWA.

EWA has become such a popular perk that many hourly wage and gig workers have come to view the offering as a benefit that can sway their decision on whether to accept a job offer, especially if they had EWA through other employers, experts say.

“Employees that have had EWA tend to look for employers that offer it when searching for a new job,” says Francisco Alvarez, an advisor for Aite-Novarica Group, a Boston-based consultancy. “These workers look at EWA like a traditional employee benefit, such as paid time off or health insurance.”

‘An Incredible Benefit’

One of EWA’s most prominent benefits is that it can spare employees from paying late and overdraft fees when they get caught in a cash crunch, says Michelle Young, vice president of operations for Automated Data Processing Inc.’s Employee Financial Solutions Group.

On average, hourly wage workers incur more than $1,000 in fees annually from a temporary inability to pay their bills, Young says. Offering EWA helps these employees improve their financial wellness, she adds. ADP offers EWA through its Wisely digital-payroll solution.

Pegged as a $12-billion market in 2021, up dramatically from $6 billion only in 2019, EWA is poised to grow 30% annually, according to Advasa, a Japanese provider of EWA services. While the market is still relatively small in terms of annual dollar volume at the moment, it has the potential to become a $12-trillion market annually, according to Ernst & Young Global Limited. Currently, there are about 20 EWA providers in the United States and 10 in Japan, according to Advasa.

Approximately 12% of the workforce in the United States has access to EWA, according to EWA provider Immediate Financial Services. “The size of the EWA market is changing rapidly as employers realize the benefits of offering it,” ADP’s Young says. “Nine of 10 employers are aware of EWA, and of those employers, the majority want to offer it.”

For employers, the benefits of offering EWA can be substantial, as it can help attract new employees at a time when many businesses have been struggling to fill vacant positions. It can also help retain employees.

The latter benefit is a very attractive proposition for employers during what’s become known as the great resignation, an ongoing trend in which employees have voluntarily resigned from their jobs en masse. The trend began in early 2021 during the Covid-19 pandemic.

Birmingham, Ala.-based Immediate says 80% of employees would prioritize an employer that offers EWA over one that does not.

“In the current era of the great resignation, giving employees flexibility [around] their paychecks is an easy way to create a positive impression, enhancing brand images while reducing turnover,” says Itaru Inaho, Adavasa’s vice president of corporate planning. “With EWA, for example, employees are less likely to take out credit card debt or source a payday loan when faced with financial troubles, [which is] an incredible benefit.”

With EWA, employees can request an advance of up to 50% of their earned wages during their current payroll period. To reconcile the advance, employers typically have the advanced sum deducted from the employee’s next paycheck. In some cases, employees are charged a fee between $1 and $5. In others,  the employer absorbs the cost of the advance.

For gig workers, one benefit is that they can receive advances after completing a shift. Some EWA providers are also making its possible for hourly wage workers who also earn gratuities to receive at the end of a shift the tips that customers paid as part of a credit or debit card payment. Branch, for example, has offered this option since 2020.

The option was developed in response to consumers’ growing use of cards during the Covid-19 pandemic.

“As more tips were being placed on cards during the pandemic, that money could not be paid out right away since the tips were not paid in cash,” says Branch chief executive Atif Siddiqi. “Restaurants and hair salons are businesses that receive a lot of tips on cards, and enabling workers to have access to those funds outside of payroll is a big plus.”

To make it easier for Uber drivers to receive their earnings, Branch recently partnered with card-issuing platform Marqeta Inc. to issue the Uber Pro Card, a Mastercard-branded business debit card to which earnings can be automatically deposited after every trip at no cost.

Drivers and couriers can also access up to $150 of their earned fares through the card, as well up to 10% cashback on gas and up to 12% on electric-vehicle charging, Branch says. In addition, drivers and couriers will have access to health-care benefits through Stride, a benefits platform provider for independent workers.

“These kinds of features help hourly wage and gig workers with budgeting and long-term planning of their finances,” says Siddiqi, who adds that more than 300 businesses use Branch’s EWA solution.

‘Dire Consequences’

For employers, EWA can increase productivity and reduce absenteeism. A recent survey by EWA provider Immediate Financial Services of its customers revealed that 82% of workers say they feel more engaged on the job since having access to their earned, but unpaid, wages.

Immediate’s EWA offering integrates with an employer’s time- tracking software to receive real-time updates of employee hours worked and wages earned. Earnings can be transferred to a bank account or reloadable debit card.

One reason employee productivity improves when EWA is available is that workers tend to bring their financial worries to work, which can impact their productivity, according to ADP. “More than 70% of [hourly wage] employees worry about finances at work and more than one in three workers worry about personal finances more than once a week, and that impacts productivity,” says ADPs Young.

At the same time, some 31% of employers offering EWA say they have seen a reduction in employee absenteeism, according to ADP. It is not uncommon for gig and hourly wage workers to call in sick so they can pick up second jobs when in need of extra cash outside their normal payroll period, experts say.

“Alleviating financial stress leads to a more productive workforce,” says Immediate chief executive and founder Matt Pierce. “Dealing with unexpected financial needs is one of the biggest stressors facing workers today. These challenges have dire consequences for employees, which in turn can spell big trouble for employers…by driving down employee engagement and satisfaction.”

Increased employee retention is another benefit to employers offering EWA. Immediate, for example, has found that, among its users, employee turnover can be reduced by as much 40%. That’s a big savings for employers as it costs a business six to nine months of a lost employee’s salary to find and train a replacement, according to Advasa.

‘Regulatory Clarity’

EWA’s growth has not escaped the attention of federal and state regulators, however. For the most part, providers see increased regulation as a good thing, as it can lead to industry standards. The key to preventing regulation that could stifle competition is to help regulators understand how EWA can improve employee’s financial wellness, experts say.

“We want regulators, especially at the state level, to understand the importance of earned wage access to employees,” says Young. “Even though the Consumer Financial Protection Bureau has weighed in on earned wage access, we expect regulations to come at the state level. So far, no state has issued a definitive judgment on EWA.”

While the Consumer Financial Protection Bureau indicated earlier this year it is likely to take a harder second look at EWA, the agency issued an advisory statement in November 2020 that EWA does not constitute a loan or credit provided the employee makes no payment to access wages earned through EWA.

One area where regulators are likely to scrutinize EWA is how providers make use of the data linked to the transactions, says Aite-Novarica’s Alvarez. Nevertheless, Alvarez doubts that increased regulatory scrutiny will slow the growth of EWA.

“Some aspects of earned wage access can be confusing, so there is a need for regulatory clarity, but I don’t see that slowing growth. It’s more likely that increased regulation will result in a single fee structure,” Alvarez says.

If anything, the growth of EWA will help employers and payroll providers to rethink how the traditional pay period works. “Traditional payroll was developed with payroll practitioners so employers had the capital to pay their employees,” says Young. “Today, flexible pay is not only becoming table stakes, it’s making payroll employee-centric.”