Guide to Early Pay Programs: Pros Cons, Tips and More

Is earned wage access right for your workforce? That’s a question more HR Pros are asking themselves as this new benefit continues to take center stage.

Earned wage access (EWA) — also known as early pay, on-demand pay, and daily pay benefit — is a way for employees to access some or all of the wages they have earned without having to wait until payday.

With nearly 70 percent of Americans living paycheck to paycheck and workers quitting their jobs at unprecedented rates, many HR managers see EWA as a tool that can help employees better manage their finances and improve worker retention.

According to the U.S. Bureau of Labor Statistics , 63 percent of workers are paid biweekly or semi-monthly and about 5% are paid even less frequently. The time between earning wages and being able to access a paycheck can cause financial hardship for workers without savings.

Earlier access to pay can offer a number of benefits to employees, including:

•  Paying bills: Access to pay immediately can help employees pay bills on time. No more struggling between paying the electricity bill before the lights go out and buying food for the week.

•  Handling emergencies: EWA programs can help workers take care of unexpected expenses that may come up before the end of the pay cycle.

•  Avoiding expensive alternatives: Perhaps most importantly, early pay can help workers avoid high-cost options such as payday loans and credit card debt or steep banking overdraft fees.

As with any new financial product, however, the benefits to users should be weighed against the costs for both users and employers. Here’s a look at how well these programs have been working so far, the pros and cons of offering EWA, along with tips for how to successfully roll out this type of benefit.

Early Pay Benefits Expected to Come on Strong

Today, a growing number of employers offer accelerated pay, mostly delivered by smartphone app. In 2019, Gartner research found that less than 5% of large employers offered EWA to their hourly employees, but that number is expected to grow to 20% by 2023.

EWA is similar to, but shouldn’t be confused with, direct to consumer (D2C) products offered by banks and other companies, which often charge a flat fee or a membership fee for early access to estimated earnings. Employer-based EWA operates through a contract with employers that allows providers to access time-and-attendance records to determine the actual earned wages during a specific pay cycle.

Early adopters of employer-based EWA, such as Walmart, show that these programs can be wildly popular. Among employees at the giant retailer, early pay is the third most sought-after benefit after health care and 401(k)s.

What’s more, EWA proponents maintain that the benefit can help employers attract workers, a constant challenge for employers of all types but especially those who hire large numbers of low-wage employees. According to an American banker survey of 494 adults conducted in March 2021, almost nine in 10 respondents said that EWA services would positively impact their interest in a job.

Take a look at Domino’s Pizza. The company offered an EWA program to help recruit 10,000 pizza delivery drivers at the start of the pandemic. Importantly, employees could use their EWA to cash out tips at the end of a shift. Domino’s also used the benefit as a way to set itself apart from competitors who were also aggressively recruiting drivers at the time.

EWAs and Turnover

Firms that help employers implement early pay programs, such as PayActiv and Even, claim that the programs help with recruitment and retention, perhaps lessening the high cost of employee turnover.

But Walmart execs, who implemented the benefit in 2017 and also offer budgeting and savings tools as part of the company’s early pay app, have found mixed results when it comes to turnover, according to an internal review conducted by Walmart and reported in Bloomberg News.

The company found that employees who used early pay along with the other in-app financial planning features stayed with the company longer. However, those who chose to only use the fast pay option without the other tools left the company faster.

The Walmart example brings up an essential question: How much do early pay programs add to overall employee financial wellness?

The Pros

Helping employees avoid payday loans, expensive overdraft fees, and high credit card interest charges is undoubtedly a huge advantage for employees trying to find financial stability. Offering EWA and online tools and counseling that help with budgeting for daily expenses and boosting savings can also contribute to financial and psychological wellness.

The Potential Drawbacks

Early pay is not a substitute for more pay. According to the American Banker report, sometimes employers use EWAs to reduce the pressure to raise wages. No matter how much access workers have to their own money, if their earnings aren’t enough to make ends meet, a worker’s financial health will likely suffer.

Offering early wage access could also build reliance on advanced pay, rather than contribute to a worker’s long-term financial stability. EWAs may be more effective when used as part of an overall financial wellness plan that also focuses on emergency savings and retirement planning.

Earned Wage Access Combined with Budgeting and Savings Tools may be Most Successful

As the Walmart example shows, HR managers are learning that the way early pay benefits are introduced and implemented can be instrumental in the success of the programs and their integration into overall employee financial wellness.

Apps that offer both early pay access and budgeting and savings tools such as bill autopay may find the most success in building overall employee financial wellness.

Many EWA providers also limit access to earned wages to 50% to 60%, as a way to keep employees from becoming dependent on early access to pay.

According to American Banker’s 2021 research, low-wage employees turn to earned wage access to pay rent, followed by balancing cash flow and paying surprise bills. Conversely, higher-wage earners tend to use the program to balance cash flow, pay bills before payday, and make general purchases.

Both categories of workers can benefit from financial planning and budgeting tools that can help workers find stability and decrease dependence on early pay or other stop-gap measures.

Promotion and Education are Key

Offering these services together may still not be enough. Employers also need to make it clear to workers that this new tool is available to them and that it comes with combined budgeting and counseling services. In addition, you may need to educate workers about how and why these services work best together.

Follow-up can also be essential. Because most EWAs are administered by a third-party platform, HR pros may lose sight of how many employees have signed on and how often each of them uses the service. Be sure to access and analyze that data so you can offer more financial wellness support to heavy EWA users.

Keep an Eye on Fees

The cost of the withdrawals is generally a small fee paid by the worker or subsidized by the employer, and the early withdrawal amount is deducted from the worker’s wages when payday arrives. While employees typically pay the fees, some employers who are looking to attract job applicants have begun to subsidize or completely cover the cost.

As you consider implementing these programs, remember that low or no fees can play a large part in their success. You don’t want employees getting into a situation where they are paying too much for accessing their own money. Smart negotiating with early pay platform providers and company efforts to subsidize fees can reduce this risk.

The Takeaway

Earned wage access programs are still in their infancy but at the same time show wide popularity among low-wage workers for a variety of economic and financial wellness reasons. As employers evaluate these programs, HR leaders must remember that thoughtful implementation can be critical to their success.

Offering an EWA program alongside other saving and money management programs might make it more effective. With its wide variety of financial tools, services, and education for employees, SoFi at Work can help.

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Photo credit: iStock/martin-dm

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