The COVID-19 pandemic has disrupted just about every facet of life, disproportionately affecting hourly workers, according to the Society for Human Resource Management. Despite less work and less regularity in pay, these workers will still need to meet a variety of financial commitments, from rent and utility bills, to the cost of healthcare. Even before the pandemic, a report from the American Payroll Association showed that 74 percent of Americans were living paycheck to paycheck.
Clearly there’s a need for a solution that can help these workers keep their heads above water. Traditionally, these employees would turn to payday lending loans, with predatory rates that can reach almost 400% interest.
Now, there’s an alternative solution—earned wage access. Also known as instant pay services or on-demand pay, here are five key things you should know:
1. It’s not a pay advance or a loan.
Earned wage access is a service that allows employees to withdraw their accrued pay before their scheduled paycheck. It’s not a loan. Accessing earned wages means just that—simply allowing employees to use wages that are earned but not yet paid, maneuvering around the arbitrary standard two-week pay period to ease workers’ financial wellness.
2. Because it’s not a loan, there’s no interest.
Whereas payday loans charge exorbitant interest rates, earned wage access charges a small flat fee per withdrawal (under $5), like an ATM convenience charge. The burden of this cost can even be covered by the workers’ employer, depending on the circumstances. This enables workers to access their money when they need it, and avoid larger penalties like late fees and overdrafts.
3. Earned wage access is done in partnership with the employer.
Unlike payday advances or loans, many employers want their workers to be able to access their earned wages in advance. Employers can offer this as a benefit, using it as a recruiting tool and to improve employee retention. They also have the ability to put caps on how much earned wages are accessible; typically 50%, ensuring there’s still money going to workers on payday.
4. On demand pay isn’t used for frivolous expenses; it helps people survive.
Earned wage access is a great benefit to offer new employees, who may have to wait for their first paycheck, as well as any employee who might be facing financial obligations outside of a typical two week pay period. Workers who use on demand pay services largely apply those funds to essential financial obligations like electric bills, putting food on the table, or unexpected medical expenses.
5. Employers pay nothing to get started.
There is no charge to the employer to set up a reputable earned wage access service, and employers do not have to change their existing payroll system. Credible providers will only make money off the convenience fee for fronting the money to workers. Those funds are then deducted from the employee’s next pay period through the existing payroll system. There are no hidden charges.
Earned wage access is a service that grew out of a need to help hourly workers fill the gap between payday and their financial obligations. A credible partner will always put their clients’ employees’ financial well-being front and center. If you’re vetting an earned wage access service, make sure they adhere to these five points, and that they have your employees’ best interests at heart.
For more information about Immediate’s earned wage access services, visit our FAQ page here.
Matt Pierce, CEO and Founder, Immediate