The Most Critical Benefit In A Post-COVID-19 World

Earned Wage Access gives workers what they need most: On-demand cash flow

As the country reopens for business, it will be anything but “business as usual”, especially for returning furloughed workers. Management must not take workers return for granted. They, and you as the benefits manager, need to consider this a “re-recruitment” period.

Workers paid attention to company communications during the crisis, especially if they were furloughed, and will do so even more now. You must address specific employee needs immediately upon their return.

The single most important employee need – where a crisis exists -- will be cash flow.

A March survey of PayActiv users showed 59% had no sick days, 60% weren’t eligible for unemployment insurance, 25% were afraid they wouldn't be able to feed their family, and 66% would meet expenses by using a payday lender.

Nor is this a short-term issue. Employees will need a long-term solution to not only manage their finances more effectively. According to PwC’s 2019 Employee Financial Wellness Survey:
 

As a benefits manager, you know your workers are real people with hopes, dreams, frustrations, and emotions. So ask yourself, what would you want to hear from a benefit manager as soon as you return?

How about, “We have a new benefit that will immediately address your cash flow needs, because we know cash flow is a priority for you”?

Remember, workers’ cash flow situation isn’t limited to having been laid off and possibly having income replacement like unemployment and stimulus checks. Tens of millions of people also have some form of credit card, payday loan, or installment loan outstanding. The Federal Reserve Bank of New York’s Q4 2019 Report of Household Debt showed total non-mortgage household debt was $4.2 trillion dollars, about three-quarters of which is credit card debt, and more than $36 billion in annual fees were collected from those borrowers who were sub-prime. $189 billion in fees were paid by in total by the demographic, according to the Financial Health Network’s 2019 data.

That demographic is primarily the hourly worker. In the aggregate, these people spend an average of $2,400 annually on payday loan, overdraft, credit card, and late fees, according to the Financial Health Network, and Clarity Services’ 2019 Alternative Financial Services Survey.

Some of that money could have been put towards other necessities or savings, reducing or ending financial stress. Instead, it is life-changing money flying out the window. EWA closes the window, and keeps the money in the household, where it belongs.

Earned Wage Access provides workers on-demand access to wages they have earned but not yet been paid on.

As you know, paychecks are rendered weekly, biweekly or monthly thanks to the fixed “batch” payroll schedule. Yet bills and creditors and life do not wait for payday.

There are enormous burdens that come with the batch payroll system, and those burdens come in the form of financial stress and a financial tax (Fin-tax) that many low-to middle income workers must deal with that many of us do not.

Financial stress has long had a negative impact on workers.  There are three harmful results from this situation – all of which you can directly remove by offering EWA, and thus become a hero to your people and your company. The first harmful result is the “fix-tax”, mentioned earlier.

The second harmful result is that financial stress saps psychology and emotional energy from workers, who then have less to give to themselves and their families. Families need time and energy. Our children are the most important people in the world and deserve our attention without financial stress impacting our parenting.

EWA creates time, which creates freedom. Freedom is what our country was founded on, and something all workers deserve.

The third harmful result is to your own company’s bottom line. PwC’s survey also found that 30% of employees spent 3 or more hours per week worrying about or attending to their financial situation. At an average wage of $17.50 per hour, employee financial stress costs you $2,600 annually in lost productivity per employee.

A paper from the Harvard Kennedy Business School found that using EWA also leads to an increase in retention and engagement, and a reduction in employee health care costs.

Why is this Earned Wage Access and not Early Wage Access?

Wages are “earned” when work has been performed to a contractual conclusion. That endpoint may be an hour, a day, a week, or by the job.

“Early” implies that compensation is provided for work that has not been completed, and therefore, not earned.

“Wage” is the payment received for services rendered, calculated for hours completed, tips earned, miles driven, boxes moved, and so on. A wage is a payment for labor rendered according to a legal and social contract. It is a right, and an earned wage cannot be taken away.

“Income” refers to the totality of money that comes from many sources, such as interest, dividends, rentals, and so on.

Benefits managers understandably may be concerned that EWA is a loan or an advance.
It is not. “Access” is not an “advance”.

“Access” is to a worker’s already-earned wages. It is analogous to you withdrawing money from a bank account. That money belongs to you, it sits in the bank, and you access it on-demand via an ATM.

With EWA, the wages have been earned, and belong to the worker. It sits in the payroll system, and is simply being accessed in the same way you access your bank account. Access is not a loan because no underwriting occurs, no credit is extended, no debt is incurred, and no interest is charged.

The accessed amount is adjusted in the next paycheck. It is a simple process change, but one with positive ramifications for employee and employer.

An advance is when a company, directly or through a third-party, allows a worker to obtain upcoming paycheck(s) ahead of time. A payroll advances a type of credit, which requires adherence to federal and state regulations.

Earned Wage Access is a hallmark of Conscious Capitalism, and makes a tangible difference in people’s lives. Your employees need and they will express appreciation for it.

That’s because if you’ve earned it, and you need it, you should be able to access it.

There is no change in the employer’s payroll schedule and funding process because earned wage access providers manage funding and money movement, synchronizes with the payroll system, and are fully compliant with all regulations.

It costs nothing for the employer, but will mean everything to the worker.