Access to earned wages is growing


For most Americans, payday is an ingrained part of their daily life that they more or less take for granted. It’s something that almost everyone leans on but doesn’t think about much – unless for some reason it doesn’t happen.

Payday has changed quite a bit over the years. Getting paid monthly was more common than bi-weekly, and direct deposit has largely supplanted physical paychecks in most places. But the fundamental concept of designating a specific day on which workers will receive full pay from their most recent job has remained fundamentally unchallenged.

Or at least until the last decade, when, as Ingo Money CEO Drew Edwards noted in a recent conversation with Karen Webster of PYMNTS, various digital native companies that depend on time workers partial began to move towards another structure. Instead of forcing workers to wait until payday to get paid, it suddenly became possible for these workers to collect their pay instantly after completing a job – no two week wait is necessary. And once that change was made, he noted, all of the part-time workplace payment DNA changed with him. The idea is now known as Access to Earned Wage (EWA), or pay-on-demand.

“If the work is now on-demand, then the worker must also be paid on-demand – it has to be an on-demand equation from start to finish,” Edwards said. “Getting the job done and coming home and then waiting to get paid next Saturday is not what these workers think. In the concert world, this deal means you won’t attract the driver, web designer, or freelance writer.

It’s an idea that has the power to change payment settings across the payroll industry.

This week, the latest big name to jump into earned salary access payments is PayPal, which announced that from now on, their employees will be able to access their earned salary whenever they want, instead of having to wait for payday. Working with Even Responsible Finance, a startup founded to provide an alternative to high-cost payday lenders, PayPal employees will be able to use the Even app for free to access their paycheck as they earn.

They can also use the other features of the app, such as automated savings and income and expense projections designed to help with budgeting.

According to PayPal, the move was made when company executives realized that the financial woes employees face on a daily or weekly basis simply cannot wait for the two-week payroll cycle. A company-wide survey confirmed that a large majority of all their employees’ paychecks were consumed by taxes and living expenses, leaving only 4% behind on average.

“They were financially stressed; they were forced to choose between full health care benefits and putting food on the table for their families, ”noted CEO Dan Schulman. The addition of Even is part of a larger PayPal effort to increase wages and reduce expenses such as healthcare for their hourly and entry-level employees.

“Over the past year, we have made significant investments to strengthen the financial health of our workforce,” Schulman said in a statement. “We have made substantial progress in increasing the net disposable income of all of our employees, and our work with Even will contribute to further improvements. “

And while PayPal is the latest, it is far from the only one. Walmart also offers EWA, as do QSR Noodles & Company, McDonald’s, and Burger King chains. And its reach is apparently set to grow, as payroll giant ADP is currently working to integrate EWA into its offering for the companies it serves.

“ADP believes we have a responsibility to develop solutions that will provide better financial opportunities for workers,” Belinda Reany, DVP / GM of Payments at ADP, noted in an interview. “We are exploring a number of new systems through which workers will be able to access their earned wages earlier, before the next payday. And we’ve had dozens of meetings over the past 12 months with regulators, lawmakers, and consumer advocacy organizations to explore how these programs should be designed and overseen to benefit consumers.

The Ceridian human resources and payroll platform also offers an EWA solution. He says part of the need has been driven by the pandemic. “The health crisis has really shown us that within the working population at large, whether people are salaried or by the hour, the majority do not have enough savings in the bank to last a week or two weeks. Noted Ceridian EVP and CIO Warren Perlman. “As the pandemic disrupted the traditional payroll process, Ceridian seized this rapid change as an opportunity to create value with employers and employees. “

Clarify the rules

As EWA access becomes more prevalent in the marketplace, regulators and lawmakers are increasingly scrutinizing this practice, fearing that these products may be the second coming of payday loans for new clothing.

The confusion stems from how most EWA deals are made between companies like PayPal and startups like Even that support their prepayment program. In most cases, the company’s actual back-end payroll system is unchanged – officially, paychecks are sent the day they always were. In one model, the third-party partner presents the consumer with the money they request based on their earnings data, and then adjusts to payday when the actual payment is made. In another model, this one adopted by the EWA Daily Pay platform, the employee pays a lump sum for a payday advance, and then the standard paycheck subtracts that amount.

Companies like Even argue that they are not lenders because the money is offered based on wages and nothing else. It is not so much a loan, they argue, as a prepayment of the salary they have already earned. As a result, there is no credit check, interest rate, or other typical loan attributes with this payment. But, especially in EWA Direct-to-Consumer (D2C) product models, the customer pays a fee (usually quite low) – in addition to interest, in some cases – for this early access. This has caught the attention of regulators in California, New York, and New Jersey, all states that currently have pending EWA legislation.

According to New Jersey Assembly Bill 3450, which was introduced to require EWA products to have contracts with employers, companies must verify employee earned income before making a cash advance and obtain employee consent before obtain information about them from the employer. The law also requires EWA companies to consider giving employees access to take-home pay instead of gross pay when advancing their pay.

But while the law was praised for these provisions, it had to be changed as well. Other existing provisions, such as banning mandatory fees or banning vendors from recovering funds, are widely seen as destructive to the industry – or at least unfair to companies looking to cover the higher cost. instant payments with fees, as opposed to companies using voluntary “tips” for them.

But legislation in New Jersey, alongside its counterparts in New York and California, is currently stalled with no immediate sign of moving forward, as lawmakers attempt to clarify the matter.

It looks like the pace of EWA access will continue to grow, perhaps even faster as more and more big names decide the payday idea should become a thing of the past.

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