REWARD
“Earned wage access has been proven to help employees to avoid fees associated with overdrafts, overdue payments and other financial pitfalls”
Introducing EWA could reduce the need for pay advances (if offered), which can be complex and time-consuming for payroll teams to manage. And how does it positively affect the employee experience? EWA is a valuable financial benefit which can help improve an employee’s well- being. It can even alleviate your employees’ financial stress, leading to increased productivity, better job satisfaction and lower turnover rates. In turn, this means that, as a business, you can improve your ability to attract and retain employees. This is what the research says: l 77% of those using EWA state that confidence improves, with 72% feeling more in control l 74% say access to their earned wages has helped reduce their financial stress l 59% confirm that access to their earned wages motivates them to go to work. By offering EWA to your employees, you show you care about their financial well-being, which is likely to increase employees’ overall engagement and satisfaction with the organisation. Higher employee engagement leads to lower turnover and reduced recruitment, onboarding and training costs. So, in summary, this is how EWA can elevate payroll’s role in the employee experience. With modern technology at our fingertips, EWA is an opportunity for payroll to become a real differentiator in the employee experience, elevating it from simply a back-office task to a function which helps their organisation attract and retain the best talent. For sure, it’s new, it’s different and it will raise questions. The fact of the matter is that this is happening, it’s real and the evidence shows it supports an employee’s financial well-being. We all know payroll people are enthusiastic about getting things right for the people they serve. This is an opportunity to go further and offer more in supporting their well-being. n
account or prepaid debit card. The total available is configurable by the employer (this is between 25-50% in most cases) to ensure the employee never spends more than they’ve earned. This approach supports employees’ financial well-being, helping to show the colouration between work and reward. Is it morally right to provide employees access to their pay before pay day? The morality question is an interesting one. Particularly with the prevalence of pay day loans and credit cards, people might ask, 'are we just perpetuating a negative cycle of debt for our employees?' It’s a fair question, so let’s look at the context of how people have been paid over the years. Once upon a time, it was commonplace for employees to be paid at the end of a day for the work they’d done (in some cases, this still happens today). Over time, this moved to wages being paid each week and later, in many industries, there was a move to a monthly pay date. Although it’s in the name, it’s important to remember that EWA only gives access to money already earned. In that sense, it’s fundamentally different to pay day loans and credit cards. This is an employee’s money – they’ve worked for it, so why shouldn’t they be able to access it? In that sense, the question of morality could also be asked the other way round – is it right for an employer to hold on to an employee’s money until the end of the pay period, and for the employee to miss out on interest or paying off debt? EWA gives employees choice, flexibility and visibility over their pay. It’s a real benefit if employees need quick access to their earnings before pay day, which reduces the possibility of individuals taking out high interest pay day loans or credit. And, when introduced with financial education, EWA has been proven to help employees to avoid fees associated with overdrafts, overdue payments and other financial pitfalls.
From what we know so far, the research shows that EWA doesn't encourage bad behaviours at all, but it can help prevent employees getting into bad financial situations. In fact, stress decreases for 77% of those using EWA and financial confidence improves, with 72% feeling more in control. ( * ) What are the tax and compliance implications? This is one for those who like to know the finer, technical details. The good news is that, from a payroll perspective, there are no additional compliance implications for offering EWA (other than ensuring employers are complying with relevant tax and employment laws, but I’m sure you’re already doing this!). Properly integrating your chosen EWA into your payroll system will mean no additional work or checks for the payroll team. From a tax perspective, EWA payments “Introducing earned wage access could reduce the need for pay advances (if offered), which can be complex and time-consuming for payroll teams to manage”
made to employees are generally considered taxable income and are
calculated in the same way as basic pay. The portion of pay the employee has chosen to draw down is deducted from net pay automatically in the payroll system and paid over to the EWA provider. It’s important to note that EWA requests aren’t loans. They just restructure the frequency when someone is paid so they’re not subject to the same regulations as loans or other forms of credit.
“For sure, it’s new, it’s different and it will raise questions”
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| Professional in Payroll, Pensions and Reward |
Issue 92 | July - August 2023
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