Earned Wage Access

Navigating the Complexity of Earned/Early Wage Access for PEO’s

Brian Brearey

In the not-so-distant past, the idea of a worker requesting an advance of their paycheck before the pay date was not only limited in the options with how to do so but was potentially expensive for the employee and potentially held a negative stigma by segments in our society.  However, in the past five years, this mindset has changed greatly in how employers view these requests (i.e., early access to wages) and are now looked upon as a necessity: a benefit they need to provide to their employees. Now, Early or Earned Wage Access (EWA) is considered a commonplace event from a payroll perspective, with many different options on how to administer it. It is something that professional employer organizations (PEOs) now need to manage and be extremely mindful of EWA from a process and compliance perspective.

 

Several studies have been conducted recently that show the increased adoption of EWA programs and why they are growing in popularity:

  • Employees' ability to put aside money from their paychecks has decreased significantly in the past few years. Recent studies show that 55% - 63% of Americans live paycheck to paycheck. 1
  • This is not limited to lower-wage earners. According to Wills Towers Watson, 36% of U.S. employees with salaries of $100,000 or more live paycheck to paycheck, double the share from 2019. 2
  • Personal finance is ranked as a leading cause of employee stress in the U.S. Nearly 50% of American employees suffer from financial stress. Financially stressed employees lose about a month of productive work days each year due to shifted focus, and they are twice as likely to seek a new job opportunity. 3
  • The gig economy's growth is expanding 3x faster than the total US workforce. Over 50% of the US workforce is likely to participate in the gig economy by 2027, with most of this population being workers in the 18-34 age range. 4
  • Macroeconomic conditions make access to employee wages before a scheduled pay date more critical than ever for workers. Rising interest rates, increased inflationary pricing for key consumer goods, and stagnant wage growth mean employees struggle to wait until the pay date to access their paychecks.

 

To manage this growing popularity in administering EWA, approximately 20% of companies (employing 15 million hourly workers) now can provide EWA programs to these employees, according to a report from Gartner. 5 Because this is a newer payroll service offering and a growing one that is expanding rapidly with several vendors entering the space, regulation, and compliance in the space are evolving, with not only PEOs having to monitor EWA but government agencies as well. There is legislation coming to the industry, but it is more reactionary due to the complexity of the programs.

  • Nevada was the first state to adopt Earned Wage Access laws on June 6. It includes provisions like required licensing by EWA providers, defining the services offered by EWA providers, and that EWA is not a loan. Missouri has followed this with its legislation in July 2023.
  • Other states are ramping up efforts to implement legislation regulating EWA programs. They include (but are not limited to) California, Georgia, Kansas, Mississippi, New York, North Carolina, Texas, Vermont, and Virginia.
  • At the Federal level, there still needs to be clarity on how EWA should be managed. In 2020, the Consumer Financial Protection Bureau (CFPB) issued some advisement that the provision of EWA services as defined today is not considered a loan or extended credit as part of the Federal Truth in Lending Act. Additional guidance was supposed to come in June 2022 from the CFPB, but to this point, more substantial consequences have yet to be provided. 7

 

This increased demand for evolution in the payroll industry from EWA creates challenges for PEOs because of how these wages are recognized and administered. As the co-employer for their clients, PEOs have to carefully navigate unique requirements (especially at the state level) because of how the wages are classified, the timing of paying them, how they are calculated, and to ensure they meet appropriate statutory minimums. In addition, because payroll providers have traditionally administered the payment of wages on a defined cycle (i.e., structured pay period for hours worked with regular paid on date), this is a significant process change for payroll providers to change their processes and technology to administer timely and accurately. Because employees view their payroll income as an area of credibility from their employer, PEOS must be able to manage EWA compliantly and accurately as the adoption of EWA only continues to expand and evolve. A generational shift in the workforce is occurring, with employees demanding a need for a modern pay experience that supports financial flexibility and a sense of fairness for workers. This means that EWA is here to stay in the PEO industry as a hot topic and an issue for our industry to manage appropriately.

 

References 

  1. Steele, J. & Martin E.J. (2023, September 18th) Living Paycheck to Paycheck Statistics.       Bankrate.com.  Living Paycheck to Paycheck Statistics | Bankrate
  2. Iacurci, G. (2022, June 16th) Amid high inflation, 36% of employees earning $100,000 or more say they are living paycheck to paycheck. CNBC. 36% of high earners are living paycheck to paycheck (cnbc.com)
  3. Automatic Data Processing (2022) Earned Wage Access: Tapping into the Potential of Flexible Pay for Today’s World of Work. ADP.  adp_ewa_study_whitepaper.pdf
  4. Team Stage (2023) Gig Economy Statistics: Demographics and Trends in 2023. Gig Economy Statistics 2023: Demographics and Trends | TeamStage
  5. Gangemi, J. (2021, April 28th) What Is Earned Wage Access, and Should You Provide It? Staffing.com What Is Earned Wage Access? Should You Provide It? | Staffing.com
  6. Coniglio, L. (2023, June 23rd) Nevada Becomes First State to Enact Earned Wage Access Law. Payroll.Org Nevada Becomes First State to Enact Earned Wage Access Law (payroll.org)
  7. Consumer Financial Protection Bureau (2020, November 30th) Consumer Financial Protection Bureau Finalizes Advisory Opinions Policy and Announces Two New Advisory Opinions  Consumer Financial Protection Bureau Finalizes Advisory Opinions Policy and Announces Two New Advisory Opinions | Consumer Financial Protection Bureau (consumerfinance.gov)
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Brian-Brearey

Brian Brearey

Brian Brearey (CPP, SHRM-CP, PMP) is the Chief Operating Officer for RealTime Services based in Winter Park, Florida. He has almost twenty-five years of experience in Human Capital Management, focusing on Payroll and Human Resources Operations and compliance. He has a master's Degree in Human Resources Management and is pursuing his Doctorate in Business Administration (DBA) at the University of North Carolina Charlotte.