Earned Wage Access (“EWA”) is a growing practice that gives employees near-immediate access to wages as they are earned. Done right, EWA can help employees avoid the financial struggles and anxiety that can sometimes come with waiting for the next paycheck, and can provide a solution for employees who may otherwise turn to high-interest payday loans or wrack up late fees as bills go overdue.
The idea of paying somebody as they do their work is not particularly earth-shattering. However, “pay as you go” payroll structures have historically posed significant logistical and cashflow issues for many employers. This is especially true for small businesses, which often need to work around their own budget constraints.
This has begun to change over the past decade, as third-party EWA providers have stepped in to handle these logistical challenges – both through employers and through direct agreements with the employees.
It is estimated that 20% of companies with majority hourly workforces will offer EWA by the end of 2023. Meanwhile, a recent survey of mostly lower-income workers found that 60% of respondents stated that they had used a third-party app to access their wages early. So with EWA and EWA providers becoming more popular, what do businesses and their employees need to know about Earned Wage Access?
What is Earned Wage Access and How Does it Work?
EWA is the ability for employees to access their wages as the wages are earned, rather than waiting for a set pay cycle. EWA comes in two forms:
- Employer-Sponsored EWA
- Similar to working with a third-party payroll processor. An employer contracts with a provider to implement EWA directly into the employer’s payroll system.The provider pays employees up front and is later reimbursed by the employer on the regularly scheduled payday.
- The employer usually pays a fee for the EWA services, with a variety of business models and pay structures available.
- Direct-to-Consumer EWA
- Similar to “payday loans” – with many of the same potential risks. The employee contracts directly with the EWA provider, usually through a mobile app, with no involvement by the employer.The employee provides timesheets or paystubs, and the provider pays the employee as wages accrue. On payday, the provider debits the already-paid wages from the employee’s bank account.
- The employee pays the EWA provider’s fees. In many cases, the fees for Direct-to-Consumer EWAs take the form of high interest charges.
How are Earned Wage Access Programs Regulated?
The regulation of EWA programs is still in its infancy. Though the concept of “pay as you go” is not new, modern EWA providers only started appearing in the early 2010s, and regulations have not yet caught up. For employers, this means that there are relatively few compliance concerns specific to starting an EWA program. As EWA programs grow in popularity, however, they have begun to catch the attention of state and federal lawmakers, and the regulatory landscape may soon be changing.
Federal Regulation
There are currently no federal laws or regulations that directly address either type of EWA. However, the Consumer Financial Protection Bureau (“CFPB”) released a 2020 Advisory Opinion stating that qualifying Employer-Sponsored EWAs are not a form of “credit” subject to the Truth in Lending Act, as long as employees are not required to pay for the program and the program itself satisfies certain other requirements.
This opinion does not address the treatment of non-qualifying EWAs. Further, the treatment of qualified EWAs under other, similar laws is unclear, including the Consumer Financial Protection Act or the Equal Credit Opportunity Act. The CFPB has acknowledged these issues and has stated that it will reexamine its stance in the future, but has provided no timeline for when we may see new federal regulations.
State Regulation
Ohio does not yet regulate Earned Wage Access. As of this writing, only two states have actually enacted legislation expressly addressing EWAs – Nevada and Missouri. However, many other state legislatures have begun to introduce bills focused on EWAs. As of now, there is no universal or model approach for what state regulation of EWAs should or will look like.
Indirect Regulation
Even without regulations that specifically address EWAs, employer-sponsored EWA programs must still comply with general labor and employment laws, including those affecting payroll, employee benefits, direct deposit, and withholding. An employer’s agreement with a third-party EWA provider should clearly address whose responsibility it is to handle these various concerns – as well as what to do if and when new laws directly affecting EWAs are introduced.
Conclusion
EWA programs offer a lot of potential benefits to both businesses and employees, but the law surrounding them continues to evolve. Even without direct regulation, there are still many other legal considerations that go into a company’s decision to adopt an EWA program. Businesses that implement EWA must also stay informed as new laws and regulations come into effect.