Earned Wage Access: An Important Factor in Financial Wellbeing
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(Editor’s Note: Today’s post is brought to you by our friends at Wisely® by ADP, a suite of cost-effective pay solutions that helps organizations move to 100% paperless pay. The myWisely app has been recognized as the App of the Year at the HR Technology Conference. Congrats! Enjoy the article.)
A few weeks ago, I published an article about the benefits of offering earned wage access (EWA) to employees. I really hope you’ll go back and check out the article. Just as a reminder, EWA refers to an employee’s ability to access their earned wages prior to the next pay cycle. It’s not a pay advance or loan. The idea behind EWA is to give employees access to money they’ve already earned.
Let me say this again. EWA is not a payday loan. There are no interest charges and in most EWA program models, there is no fee. Employees are simply gaining access to the money they’ve already earned. Earned wage access is just one of the services available to employees via ADP’s Wisely app, a suite of digital financial wellness tools, that allow employees to receive their pay the way that works best for them.
I understand that earned wage access might be a relatively new concept. So today, I thought it might be helpful to elaborate on earned wage access. Specifically, what employees might use EWA funds for and why that’s an important factor in financial wellbeing.
In the ADP white paper “Earned Wage Access: Tapping into the Potential of Flexible Pay for Today’s World of Work”, they share some very interesting data about who uses EWA and for what reason. First, it’s important to note that 76% of employees in this study indicated that it was important for employers to offer earned wage access.
Interestingly, the ADP survey found that employees tended to underestimate how often they would use EWA, as compared to how often they actually use it when it is made available. 37% of employees who do not have access to EWA, estimated they would request an early payment only when a specific need occurred. 25% would use EWA one to six times a year, while 20% suggested they might use it every or every other pay period.
In reality, the majority of employees who have access to EWA indicate they request early access every or every other pay period (62%). Nearly a third said they used it one to six times per year, and 7% indicated that they used EWA when a specific need occurred.
Additionally, the usage of accessed early wages differs by age. Younger employees (age 18-24) tend to use it to reduce the stress of not having enough cash until payday. Those age 25 and older use it for family expenses and to pay bills to avoid late fees.
To me, that’s the reason earned wage access is such an important part of financial wellbeing. The Consumer Financial Protection Bureau (CFPB), a U.S. government agency focused of making consumer financial markets work for consumers, providers, and the economy, says that financial wellbeing means “being able to take control of your financial life and have financial peace of mind”. The CFPB goes on to say that financial wellbeing has four components:
- Feeling in control, as in being able to cover one’s expenses.
- Capacity to absorb a financial shock, like a medical expense.
- On track to meet goals, whether it’s saving or reducing a debt.
- Flexibility to make choices, that allow someone to enjoy life.
When we think about these four factors, earned wage access aligns with the four factors of financial wellbeing.
- It allows employees to feel in control because they know EWA is there if they need it. And with Wisely by ADP app, they know they don’t have to pay a fee to use it.
- ADP’s survey data tells us that many employees use EWA to cover a family expense.
- Earned wage access can help employees pay their bills on time without incurring late fees.
- And finally, EWA can give employees the flexibility to make good financial choices.
Now that we’ve talked about how financial wellbeing benefits employees. Let’s take a moment to discuss how it benefits companies. Because 85% of both employees and employers agree that financial wellbeing is important to overall wellbeing
From an organizational standpoint, 84% of employers believe offering financial wellbeing tools will help to attract talent. So, I’d like to think it goes without saying (but let me say it anyway), when organizations offer financial wellbeing tools (which employees want) and it helps to reduce financial stress (which no one wants), then that goes a long way toward employee retention (which organizations want).
When and how employees get paid can be a strategic advantage in an organization’s recruiting and retention efforts. If you want to learn more about earned wage access, check out this ADP webinar on “Offering Earned Wage Access: Strategic & Compliance Considerations”. You can also download ADP’s latest white paper on “Earned Wage Access: Tapping into the Potential of Flexible Pay for Today’s World of Work”.
While organizations are always watching the economy, they might be doing it a bit more so right now. Even with economic uncertainty, it’s important to remember there’s still a very competitive jobs market. Organizations should be looking for ways to stand out with candidates and retain employees. I think it’s time to realize that employees want greater control over their money. They deserve it. And it’s good for them…and the company.
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