Recent US bank collapses highlight similar risks incurred by sending your employee payroll funds to a 3rd-party Earned Wage Access (EWA) vendor to deduct any EWA transfers and fees and pay your employees accurately and on time. These payroll-intercept EWA vendors are not licensed by states as lenders or money transmitters, nor are they governed by the Federal Deposit Insurance Corporation (FDIC) or Office of the Comptroller of the Currency (OCC) federal regulatory authorities. Handing over your payroll is like gambling with your employee’s hard-earned income.
Estimated reading time: 3 minutes
2nd and 3rd Largest Bank Failures in U.S. History
We have experienced the 2nd and 3rd largest bank failures in history in the last few weeks. Silicon Valley Bank ($209 billion in assets) and Signature Bank ($110 billion in assets) fall behind only Washington Mutual Bank’s failure in September of 2008 ($307 billion).
All the bank customers with deposits of $250,000 or less in these failed banks are protected by the Federal Deposit Insurance Corporation (FDIC). Additionally, “the FDIC expanded deposit guarantees to types of deposits that aren’t usually ensured, like mutual funds, and banks are being given access to money they couldn’t get in the market.”
Many businesses relied on regional banks like Silicon Valley Bank (SVB) and Signature Bank for their cash flow and payroll accounts. The founders of one small company, Slumberkins, worried if they would be able to send out the next round of paychecks.
Assuming their accounts were within the FDIC-insured threshold, businesses like Slumberkins should be made whole once the dust settles on the SVB collapse. But the entire experience brings up the consequences of high-risk banking scenarios and the gamble some are taking with payroll-intercept Earned Wage Access (EWA) models.
What is EWA?
Earned Wage Access (EWA) is a voluntary financial wellness benefit. It allows employees to access their earned wages, when needed, between pay cycles. By connecting with payroll, time, and attendance systems, an EWA vendor can calculate how much an employee has made, subtract taxes and deductions, and provide employee access to earned wages.
What’s A Payroll-Intercept EWA Model?
After an employee makes an Earned Wage Access (EWA) transfer, there are two ways to recover the EWA transferred funds (and associate fees if applicable):
1. Payroll deduction. The EWA funds and fee(s) are documented as an after-tax voluntary deduction on the employee’s payroll statement as part of the normal payroll process. The EWA transferred funds are replenished in the employer’s EWA funding account, and fees are collected and sent to the EWA vendor. The EWA vendor provides a monthly itemized statement to the employer.
2. Payroll intercept. Payroll intercept extends the normal payroll process outside of the employer’s control. After the employer runs payroll, the net payroll record and funds (post taxes and deductions) for employees enrolled in the EWA program are sent to the EWA vendor. That vendor then extracts the previously paid EWA transfers plus applicable fees. Finally, the vendor deposits the final net pay to an account in the employee’s name.
The payroll-intercept EWA model gives control of payroll funds to the EWA vendor. But what happens if that EWA vendor fails like Silicon Valley Bank?
EWA Vendors Should Never Control Employee Payroll
Earned Wage Access (EWA) vendors are not FDIC-insured; there is no bailout if they go under or out of business. In addition, the venture capital community supporting these third-party EWA models will not refund your employee payroll if lost.
And if Federal and State regulators descend on your company headquarters, your business will be held responsible. The EWA vendor will not send you their corporate lawyers or high-priced accountants.
Keep Custody Of Your Employee Payroll
Risk is inherent in business; however, unnecessary risk is simply reckless. Signing up with an Earned Wage Access (EWA) vendor who requires control of payroll funds is a reckless risk akin to throwing the dice and gambling with an employee’s salary.
Ensure your EWA vendor recovers funds through a payroll deduction, not a payroll intercept. You’ll stay in control while helping your employees and, at the same time, improving your competitive advantage.
EWA Done Right
FlexWage delivers “EWA Done Right” because it offers the most compliant, responsible, and transparent Earned Wage Access (EWA) solution in the market today.
Schedule an introduction call today!
Keep exploring and learning >>>>> Misleading EWA State Payroll Deduction Issues