December 9, 2020Payroll

Not all accelerated pay is created equal: Questions to ask about earned wage access programs

Employees are tired of waiting two weeks to get paid. And it’s no surprise why. 72% of employees stress about personal financial issues while at work, and 78% live paycheck to paycheck. Giving employees access to their earnings more frequently than every two weeks is one of the best ways to empower them financially and improve retention. New apps that offer on-demand pay have launched in recent years, but a lot of them are problematic. So much so that the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion on earned wage access (EWA) solutions on Nov 30.

The opinion states that EWA programs must “…provide funds to accounts of employee’s choice and must not charge fees for delivering those funds” and clarifies other ways that EWA programs can’t act like lenders. ( does a great job breaking down additional details.)

Bottom line: Not all accelerated pay options are created equal and most only serve as a band-aid to a problem (the two-week pay cycle) vs. fixing it (actually paying people faster). There’s a real difference between true flexible pay options and earned wage access apps.

Here are six key questions to ask when you’re searching for an accelerated pay solution for your employees to help you avoid making the wrong choice.

1. Do they offer all earned pay or only a portion?

The right provider knows getting paid more frequently isn’t just a perk, it’s a life-changing benefit that can improve employee satisfaction and financial well-being. So why would they stop employees from accessing all their pay?

Earned wage access apps only let employees access a portion of their earned pay. This doesn’t empower employees with full control over their own finances. It restricts control over income that’s already theirs, and could give employees the wrong impression that they’re not trusted to make the best decisions for themselves.

2. Are they one-size-fits-all vs. truly flexible?

Nearly all accelerated pay providers only offer one option: A one-time on-demand payment. While this can be a great option for employees who need to cover a sudden expense, other employees will benefit from consistently getting paid more frequently to help with budgeting, paying down debt and covering monthly bills.

Look for providers that offer options beyond just on-demand pay—like the flexibility to set daily, weekly or other off-standard pay cycles—and can design the right payment structure for your company.

3. Are they a loan provider or a payroll company?

Don’t loop your employees into a payday loan company in disguise. If the service charges employees fees or interest—or require “tips” for using it—they don’t have your employees’ best interest in mind. Other providers may only charge a nominal fee or none at all but require your employees to receive their earnings on a pay card where they make money off the interchange fees. For minimum wage or part-time workers especially, even a small fee could add up to losing hours of pay.

This is exactly what the CFPB advisory opinion was getting at, and means that many companies that operate this way will have to pivot.

A red flag is if the app works directly with the employees vs. establishing a relationship with your company. Again, this was addressed in the CFPB opinion: “the EWA must contract directly with employers to offer and provide covered EWA transactions to the employer’s employees.”

If they do work directly with your employees, they only make it look like they’re giving employees access to their pay when they’re really just giving them a loan. As an employer, you want to promote financially healthy solutions for your employees and avoid ones that could result in APRs that are higher than some credit cards or payday loans.

4. Are they transparent?

Is it clear and upfront how their cost structure works, how much of their paycheck employees can access and when, and how they reconcile payroll for the employer? If you can’t find this information readily online, chances are you or your employees are going to be on the hook for hidden costs.

Some payroll companies’ incentives are to earn interest on the cash they hold and aren’t structured to advance payments to employees. Look for companies who offer accelerated pay without impacting your cash flow.

5. Is it a complicated add-on?

Since most accelerated pay providers are standalone apps vs. full-service payroll, the integration with your time and attendance tool and payroll software won’t be seamless and could require extra work for your managers and payroll admins. It also creates a confusing user experience for you employees who have to collect their pay stubs from your payroll company and deal with an entirely different company for accelerated pay.

Look for all-in-one services that automate time and attendance with payroll and simplify the manager verification process. Having a simple way to approve hours and run payroll from your mobile device can also be a huge time-saver.

6. Is it a tool that will really impact employee engagement and retention?

Giving people accelerated pay is a benefit that creates happier, more engaged employees. It shows that you care about their financial health and well-being, and will set you apart among other employers. But you can’t just check a box and expect a solution that charges them a fee, ties up part of their pay or has a poor user experience to create a better culture at your company. Find an accelerated pay partner that looks out for the best interests of your employees.

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