Earned Wage Access: 5 things to ask your provider
Earned Wage Access (EWA) has become one of the most requested ways for employees to manage their money.
Over a million people now have real-time access to their wages, giving them more control over their money.
But with the number of EWA providers growing, how do you choose the right one?
Based on Wagestream’s experience of giving over 500,000 people real-time access to their wages, we advise you to ask these questions:
1. Is their offering actually Earned Wage Access (EWA)?
Key takeaway: Make sure what you’re implementing is actually EWA. Not all solutions are the same and some offer wage advances that are forms of credit.
EWA is a technology that enables your staff to access their earned-but-not-yet-paid wages.
For a provider to operate within FCA guidance, the provider must have direct access to your enterprise resource management systems so that they can access real-time earnings data.
Without that information, they cannot receive accurate data about the hours your employees have worked, so will then be providing an advance on earnings – which is a form of credit.
2. Will every employee be able to access their pay at any time?
Key takeaway: any provider that doesn’t enable access at any time undermines the real benefit of Earned Wage Access. If the answer to this question is no, this provider is not offering Earned Wage Access.
Providers that do not connect to your ERP system operate by manually receiving information from payroll to understand hours worked, meaning they lock out at the same time and become unavailable during the final phase of the paycycle.
This means that your employees won’t be able to access their wages for almost 25% of the pay cycle and during the period when they need it the most. In fact, 43% of transfers using Wagestream are made in the seven days before payday.
3. When an employee accesses their wages, how will it appear on their bank statement and/or payslip?
Key takeaway: If wages accessed appear as though they’re from a third party this can have a serious negative impact on future affordability checks for important life events such as mortgages.
With some solutions, everytime an employee accesses their wages, it appears on their bank statement or payslip as though it’s come from the provider and not you, the employer.
Being in receipt of funds from a third party can have a serious impact on future affordability checks, as they will not be considered as income and will not demonstrate affordability.
Checking this important but seemingly small element could be crucial to the long-term financial health of your people.
4. Are they operating without transparency or with a ‘freemium’ model?
Key takeaway: This is where a provider offers the service free to you and your staff. Have you ever heard of the term ‘if you’re not paying for the product then you are the product’? This rule of thumb should be applied here.
Some providers may offer the service completely free, to both employers and employees.
The UK’s financial regulator, FCA, now advises that ‘fee-free’ solutions like this are likely designed to harvest and monetise your employees’ data for other purposes:
“Some operators in this market are willing to offer the service at no charge to the employee or the employer, as long as the employer also takes certain other commercial services with the operator, for example, factoring invoices”
Any provider you partner with should be able to share transparent data on their business model, and the impact their platform has on employees. Wagestream publishes an Impact Assessment – let us know if you’d like to see it. You can read the full FCA report here.
5. Is this going to increase employee debt in any way?
Key takeaway: Employees should be able to avoid high-cost, short-term credit (such as payday lenders) through effective access to earned wages without ever incurring interest.
There are two things to consider here.
Firstly, if the solution is unavailable during the last phase of the pay cycle (as above) and your employees cannot freely access their wages, they may turn to payday lenders or high-cost short-term credit instead.
Earned Wage Access is designed to give power over their pay, not exclude them when they might need it most. 49% of Wagestream users who use payday loans use them less as a result of having access to their earned wages (October 2019 survey).
Secondly, it’s important to understand whether a provider is offering EWA at no cost to you and your employees in order to cross-sell other inappropriate financial services to your employees at a later date.
The FCA also addresses this issue in their report, The Woolard Review, under section 4.69; ‘Potential harms of Employee Salary Advance Schemes:’
“Where ESAS providers also offer regulated credit products, or at least act as a broker, there is a potential conflict of interest. These risks can include inappropriate relationships between employers and lenders. For example, cross-selling of inappropriate financial services products to employees”
You can read the full report here.
For more information on Earned Wage Access and choosing the right provider, get in touch with our team today.