Earned wage access: the most important benefit in a post-COVID-19 world

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COVID-19 has changed the world and employee benefits managers must pivot to products and services that provide direct and immediate assistance to workers.

Returning employees will look for signals that they are valued and that employers truly care about their well-being. Many will be resentful of layoffs, regardless of their necessity.

If employees — particularly front-line workers — do not feel valued, then businesses will experience increases in retention, engagement, and productivity problems. There will also be recruitment competition, as forward-thinking businesses entice with new or enhanced benefits.

To stay ahead of the game, benefits managers must learn that the single most important benefit is earned wage access. Earned wage access is an emerging employee benefit that provides workers on-demand access to wages they have earned but not yet been paid on. Labor is rendered in real time, but wages are not. They are paid in arrears — either weekly, biweekly or monthly thanks to the fixed “batch” payroll schedule.

Wages are “earned” when work or services have been rendered to an agreed-upon, contractual conclusion. That endpoint may be an hour, a day, a week, or by the job. The compensation has thus been earned thanks to the worker’s efforts. “Early” implies that compensation is provided for work that has not yet been completed, and therefore, earned. “Wage” is the payment received for work or services rendered. It is a contribution for direct work, and calculated for hours completed, tips earned, miles driven, boxes moved, and so on. A wage is payment for labor rendered according to a legal and social contract. It is a right, and an earned wage cannot be taken away.

“Income” refers to the totality of money that may come from many sources, such as interest, dividends, rentals, and so on. “Access” is to a worker’s already-earned wages. This is analogous to withdrawing money from a bank account. The money belongs to the worker. It has been earned and is sitting someplace and may be accessed. The accessed amount is adjusted in the next paycheck. It is a simple process change, but one with positive ramifications for employee and employer.

“Access” is not an “advance." An advance is when a company, directly or through a third-party, allows a worker to obtain upcoming paycheck(s) ahead of time. If the advance is of future (i.e., unearned) wages or payroll, it can be considered a type of credit or loan which may require adherence to federal or state regulations. This is “early” pay, not earned wages,, and thus may be considered a loan.

“Access” is not a loan because no underwriting occurs, no credit is extended nor debt incurred — and the transaction is not reported to credit bureaus and no interest is charged.

Why is earned wage access so important?

Beyond the moral imperative of having access to pay when earned, financial stress has long had a negative impact on workers. According to PwC’s 2019 Employee Financial Wellness Survey, 47% of employees are stressed with their financial situation, 67% carry credit card balances, 37% cannot make minimum payments on time and 23% cannot meet monthly expenses on time.

The result of this financial crunch is that workers are spending an average of $2,400 annually on payday loan, overdraft, and late fees, according to the Financial Health Network, and Clarity Services’ 2019 Alternative Financial Services Survey. Some of that money could have been put towards savings, replacing financial stress with the time and freedom to be with their families and enhance their lives.

Employer’s perspective

There is no change in the employer’s payroll schedule and funding process because earned wage access providers manage the funding and money movements, synchronizes with the payroll system, and are fully compliant with all federal and state regulations.

Earned wage access increases employee retention by 36%. PwC found that 43% of workers spent 3 or more hours per week thinking about or dealing with financial stress. At an average wage of $17.50/hour, that translates to over $2,600 of lost productivity per employee per year.

Earned wage access is merely the spark that begins a chain reaction, one that leads to enhanced well-being for both individuals and society. Like any new concept, it is slowly becoming understood, and if you’ve earned it, and you need it, you should have access to it.

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