A clear understanding of who is responsible for EWA within your business will ensure the success of this important voluntary financial wellness benefit.
This article explores primary elements to consider when determining responsibility for Earned Wage Access (EWA) in your organization and the benefits of offering OnDemand Pay to employees.
Estimated Reading Time: 8 minutes.
Employees are increasingly seeking flexible pay access to manage their finances effectively. EWA is a popular solution that provides access to earned wages before a regular payday. This innovative approach significantly influences employee satisfaction and financial wellness, prompting businesses to consider its implementation.
What is Earned Wage Access (EWA)?
Earned Wage Access (EWA), also known as OnDemand Pay, is a financial wellness benefit that allows your employees to access a portion of their earned wages before their scheduled payday. It is a low-cost, responsible cash flow management solution for more than 60% of Americans living paycheck to paycheck. EWA can help your workforce manage unexpected expenses without using high-interest payday loans or credit cards.
The primary benefit of EWA is improved financial wellness for employees. By having access to their earned wages when needed, workers can better manage their cash flow and reduce financial stress. Access to earned wages, when needed, improves employee satisfaction and productivity in the workplace.
The Real EWA
Two models have emerged to give employees access to their earned wages. The first is through an employer. This type of EWA is called employer-funded, employer-sponsored, employer-integrated, business-to-business (B2B), or business-to-business-to-consumer (B2B2C). When the contract is with the employer, integration is possible with HR and payroll systems, making it possible for the EWA vendor to calculate available wages accurately.
The second type of EWA is vendor-funded, direct-to-consumer (D2C), or business-to-consumer (B2C) —in these models, the EWA vendor contracts directly with the employee/consumer. Information about the employee’s wages comes from the employee, either from banking history, tracking an employee’s location via their phone, or algorithmic estimates. Accurate wage calculations can’t be verified because there is no connection to the employer’s payroll system.
EWA must be connected to an employer’s HR and payroll systems to verify the employee’s net wages earned. Without such data connections, an EWA program has nothing to do with earned wages and is, in fact, a consumer loan.
Real EWA is not a loan. Real EWA solutions enable employers to pay their employees between pay cycles.
How EWA works in practice
Real EWA programs integrate with an employer’s payroll system to track employees’ earned wages — integration with payroll and HRIS systems ensures data accuracy.
During implementation, the employer sets guardrails for the EWA program, including:
>>> The maximum percentage of earned accrued wages an employee can access per pay period
>>> The number of EWA transactions an employee can make per pay period
>>> Fee amount (employees, employers, or both can pay the fee)
>>> The cap on transaction fees
These guardrails can be set for different employee bands, tiers, pay scales, roles, and locations.
For example, a business can set EWA policies that allow an employee making up to $36,000 per year to access 75% of their earned wages twice per two-week pay period. A small ATM-like transaction fee, $3.00, is charged. The transaction fees are capped at $6.00 monthly, providing two free monthly transactions.
Access to EWA Via A Mobile App
Employees who need funds access the EWA program through a mobile app or online platform. The app allows users to review their earned wage calculation and the program’s parameters (percentage of wages available, number of EWA transactions remaining, fees, and history of transactions). Then, they can request a portion of their earned wages. The EWA system transfers the requested amount immediately to the employee’s bank account or payroll card. Immediate fund availability is crucial, as employees frequently use Earned Wage Access for emergency expenses.
Image: FlexWage OnDemand Pay Mobile App Images: Make a Transfer Screen and View Details Screen.
The payroll system deducts the amount accessed early and the associated fee from the employee’s paycheck on the next payday. This process ensures that employees only receive wages they have already earned, maintaining the integrity of the pay cycle.
The employee’s pay statement lists the EWA amount and fees as deductions, similar to a gym membership or pet insurance fee. This transparency ensures that employees understand the transaction, reducing questions for the payroll department.
Key stakeholders involved in EWA
The main stakeholders in an EWA program include:
1. Employees: The primary beneficiaries who gain access to their earned wages.
2. Employers: Organizations that offer EWA as a voluntary financial wellness benefit.
3. EWA providers: Companies that develop and manage the technology and processes for EWA services.
4. Payroll departments: Teams responsible for integrating EWA with existing payroll systems.
5. HR & benefits administration: Teams responsible for voluntary financial wellness benefits selection and administration.
Identifying Who Is Responsible for EWA
When implementing an EWA program, it’s essential to identify the key departments responsible for its success. Each plays a vital role in ensuring the smooth operation of this financial wellness benefit.
Human Resource EWA Responsibilities
HR teams are often at the forefront of introducing earned wage access. They have a significant influence on employee satisfaction and retention. HR can address financial stress and low productivity challenges by advocating for EWA. They’re also responsible for educating employees about this benefit and ensuring they can use it responsibly. HR professionals can leverage EWA to set their organization apart in recruitment efforts, demonstrating a commitment to employee financial well-being.
Payroll Team EWA Responsibilities
The payroll department plays a crucial role in implementing EWA. They ensure that the EWA program can access accurate payroll, time, and attendance data. Additionally, the EWA transactions and fees must be shown on the employee pay stub to ensure transparency and compliance with state DoL pay statement regulations. Employee requests for earned wages should not disrupt regular payroll operations, require team intervention, or change the direct deposit process. Payroll professionals may be involved in researching EWA options and assessing their impact on current systems. Their expertise is essential in minimizing additional administrative burdens while maintaining accurate payroll records.
Finance Department Responsibilities
In employer-based EWA, the finance department, often a controller or corporate treasury, sets up an account from which the EWA funds are withdrawn. This fund is typically funded with 3-5% of payroll. The EWA vendor tracks the funding account and notifies the finance department of usage peaks.
C-Suite Responsibilities
Finally, C-suite executives play a pivotal role in the success of an EWA program. Their endorsement sets a positive tone from the top, signaling to employees that financial wellness is a company priority. This leadership buy-in fosters a culture where employees feel supported and are more likely to engage with the program. Recognizing that employees increasingly expect assistance with financial wellness, executives understand the necessity of providing such support. Implementing EWA offers a valuable benefit that employees can utilize as needed, enhancing overall job satisfaction and retention. This proactive approach addresses employees’ financial concerns and aligns with organizational goals, creating a mutually beneficial scenario.
Implementing an EWA Program
Selecting an EWA provider
When implementing an EWA program, choosing the right provider is crucial. Look for a reputable company with a record of delivering quality service and strong customer relationships. Consider factors like transparent fee structures, capped fees, accurate wage calculations, integration capabilities with existing payroll systems, and additional features like budgeting tools or financial education resources. Ensure the provider offers launch tools and marketing assets to help educate employees about the EWA financial wellness benefit. Excellent customer support is essential to address employees’ issues when accessing their earned wages.
Integration with existing systems
A correctly implemented EWA program should be compatible with existing payroll processes, providing flexible pay options without adding complexity for payroll departments. Look for providers that easily integrate your time and attendance systems to confirm employee census information, work hours, earned wages, and deductions. This integration should not require changes to your current payroll processes, making it easy for your organization to adopt and maintain the program.
Employee education and communication
Clear communication is essential when introducing an EWA program. Work with your EWA provider to develop a comprehensive plan to educate employees about how the program works, its benefits, and any associated fees. Use various channels such as emails, posters, company intranets, and interactive sessions to reach all employees effectively. Provide an FAQ document to address common questions and concerns proactively. Emphasize that EWA is intended for short-term financial needs and promotes responsible financial behavior.
Monitoring and compliance
Regularly evaluate the effectiveness of your EWA program, aligning with payroll frequency. Seek feedback from employees to identify areas for improvement and address any concerns. Stay updated with industry developments and new features offered by your EWA provider. Ensure compliance with relevant labor laws and regulations related to wage payment, paying attention to factors like wage reporting requirements.
Legal and Regulatory Considerations
State-specific EWA laws
Several states have recently enacted legislation to regulate earned wage access services. These regulations typically require EWA providers to register with the state and meet annual reporting requirements. Importantly, these laws generally do not classify EWA services as loans, which has been a point of contention in the industry.
FlexWage EWA has received confirmation from California, Connecticut, Kansas, Nevada, and Vermont that its product, OnDemand Pay, is not a loan and does not require state banking licensing. FlexWage is the ONLY EWA provider to have received these carve-outs.
Federal regulations
The Consumer Financial Protection Bureau (CFPB) has proposed an interpretive rule that would classify many EWA products as consumer loans subject to the Truth in Lending Act (TILA). This stance contrasts with some state-level approaches and has faced opposition from industry groups. The CFPB’s rule, if approved, would require providers to disclose finance charges and comply with other TILA obligations.
Compliance requirements
Earned Wage Access (EWA) providers navigate state and federal regulations to ensure compliance. They develop robust policies for addressing consumer disputes, implement transparent fee disclosure practices, and adhere to data privacy and security standards. Additionally, providers must stay informed about evolving regulatory frameworks across different jurisdictions.
Competitive Advantage
By offering EWA, companies can boost worker satisfaction, reduce financial stress, and improve hiring processes and retention rates. However, implementing EWA requires collaboration among various departments, including HR, payroll, finance, and IT, to ensure a smooth rollout and ongoing management.
As the landscape of employee benefits continues to evolve, staying informed about legal and regulatory changes is crucial for businesses offering EWA. By taking a thoughtful approach to EWA implementation and working with industry leaders who designed EWA solutions to meet the complexities of federal and state labor, banking, and lending laws, companies can benefit their employees while navigating the complexities of this emerging financial service.
EWA Done Right
FlexWage delivers “EWA Done Right” because it offers the most compliant, responsible, and transparent Earned Wage Access (EWA) solution.
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