If your car breaks down or you run into an unexpected expense just before payday, you might wish you could access your paycheck early to pay for it. Some companies allow you to do just that with a benefit called earned wage access (EWA).
Also called “early pay” and sometimes referred to as “on-demand pay,” earned wage access is sometimes available at companies that employ hourly workers.
Learn more about this unique benefit, how it lets you access wages early, and its pros and cons.
How does earned wage access work?
So, what is earned wage access? Essentially, earned wage access lets you request part of your paycheck before your regularly scheduled payday. Earned wage access is a benefit that some companies offer through a third-party service or app.
EWA could be helpful if you have expenses that can’t wait until payday. The amount you get paid is deducted from your next paycheck.
Now that you have an answer to, “What is earned wage access?” here’s a closer look at how it works.
1. Download the app and link your bank account
Companies that offer EWA to employees can partner with a specific app to process payments. To use EWA through your employer, you’ll need to download their partner app and link your spending account for direct deposit.
The app may connect with your company’s payroll to track your hours and wages earned. You can log in to see how much you’ve earned during the current pay period.
2. Request a payout of part of your paycheck
From the EWA app, you can request a payout of part of your paycheck. Check with your company about any earned wage access restrictions. For example, they might limit how much you can access or how many requests you can make per pay period.
3. Agree to the terms and any fees
Review the terms of your request before finalizing it, including any fees. Some employers cover payment processing fees for employees, while others could potentially pass the fees on to you.¹ You also might have to pay a fee for instant deposit into your bank account, but deposits that take a business day or two could be free.
4. Get the rest of your paycheck on payday
When you use earned wage access, you’ll still receive your regularly scheduled paycheck. However, the amount you receive on payday will be smaller, as your payroll administrator will subtract the deposits you already took and pay out the remaining balance.
What are the pros of earned wage access?
Earned wage access has some benefits for employees and employers alike. It gives employees a more flexible pay structure while helping employers attract and retain their workforce. Here’s a closer look at the pros of earned wage access.
Improved employee recruitment and retention
Offering earned wage access can help companies attract and retain hourly workers. Around 86% of workers would prefer to access their paycheck more frequently than the traditional bi-weekly schedule.²
Meanwhile, 76% of workers said it was important to them that a company offered earned wage access. Three in four millennial workers said the availability of an earned wage access benefit would influence whether or not they accepted a job offer.³
Greater employee productivity
If employees are stressed about finances, they may have a decline in productivity at work. They may also have to take on a second job to make ends meet, which would reduce their availability.
The option for earned wage access can potentially help employees feel more confident, engaged, and productive in the workplace.
Increased financial wellness
Many Americans live paycheck to paycheck and don’t have enough savings to cover unexpected expenses. In one survey, 83% of respondents had less than $500 saved for an emergency and 50% had nothing saved.²
Being able to access pay early could help improve workers’ financial wellness. It can also help them avoid overdraft fees and high-interest debt, such as credit card debt and payday loans.
More money for unexpected expenses
Even if you’ve been carefully budgeting your money, you never know when you might run into an unexpected and expensive bill, like a car repair or medical bill. You may not be able to wait until your regular payday to pay.
With earned wage access, you can access part of your paycheck within a day or two to cover your expense. This flexibility can make surprises less stressful and help you resolve it quickly.
What are the considerations of earned wage access?
Earned wage access can also have some downsides that workers and companies should consider before using it. Here are some potential cons of EWA to be aware of.
Potential fees for employees
Depending on your employer, you currently may have to pay a fee to use earned wage access. For instance, some EWA apps charge a fee for instant transfers to a bank account. Read the fine print so you’re not hit with unexpected costs and can decide whether an instant transfer is worth the expense.
The Consumer Finance Protection Bureau (CFPB) just proposed a landmark rule that would classify paycheck advance products as loans. It seems the CFPB is favoring fee free models for employer-integrating EWA products. If you’re an employer, be prepared: get access to our proprietary Earned Wage Access Preparedness Plan.
Maximum request limits
Depending on the EWA provider and employer, workers may be subject to request limits. For instance, you may only be able to make a certain number of requests each day or pay period.
Or, you might only be able to take out half of your earned wages or be limited to a maximum amount. Some apps set a lower limit for new users.
Limited on-demand availability
Depending on your company’s EWA app, you may not have instant access to payments. Instead, you might have to wait a day or two for the request to process and hit your account.
If instant deposits are available, you might have to pay a fee for this faster access to funds. These fees and waiting periods may be inconvenient if you need your wages right away and could discourage you from using the benefit.
Privacy concerns
Since EWA apps can ask for employees’ bank account information, employers should be careful about choosing a provider with strong security measures. Due diligence when choosing an EWA provider can help reassure employees about the security of their personal information.
Earned wage access vs. cash advance apps
Earned wage access benefits are similar to cash advance apps, as both let you access a portion of your pay early. However, cash advance apps offer a small loan that you have to pay back on your next paycheck, whereas earned wage benefits are a deposit of money that you’ve already earned.
Similarities
- No credit check: Both earned wage access and cash advance apps generally don’t check your credit to get a pay advance, so you don’t have to worry about having a certain credit score or undergoing a hard credit inquiry.
- Small borrowing amounts: The amount you can access with EWA and cash advance apps is usually subject to certain limits.
- Fast funding: Both EWA and cash advance apps can deposit money into your account, often within a day or two. You may also be able to get an instant transfer, but this may require a fee.
Differences
- Employer involvement: EWA is only available through employers, while anyone can download a cash advance app and borrow money without employer involvement.
- Cash access requirements: With EWA, the amount you can access depends on how much you’ve earned so far during the pay period, as well as any app or employer limits. A cash advance app, on the other hand, usually sets limits based on its own guidelines and the cash flow in your account.
- Fees: EWA may be more affordable than a cash advance app, as your employer could cover most or all of the fees. With a cash advance app, you likely have to pay a monthly subscription or fast funding fee.
Use earned wage access wisely
Earned wage access can give you greater flexibility in accessing your wages as you earn them. Any amount you get deposited early, however, will be subtracted from your next paycheck, so make sure to account for this change in your budget.
If you’re using an earned wage access benefit, this guide to budgeting can help you manage your finances.