Today, as we move forward into even more uncertain economic times, on-demand pay is increasingly becoming an essential benefit that helps improve the financial stability of everyday workers.
Questions still remain though and new regulatory guidelines continue to evolve. Some of the most prominent issues include EWA funding models, whether an employee should ever have to pay to access their own money, and if an earned wage access solution is subject to consumer loan regulations.
As our industry continues to grow, AnyDay looks at some key considerations in relation to earned wage access.
What is at the core of earned wage access?
As more and more businesses worldwide introduce earned wage access platforms for their employees, the market is becoming increasingly competitive. Many firms are genuinely inspired by their passion for helping modern employees improve their financial lives and, as earned wage access solutions aim to provide one central solution – easy access to accrued wages – EWA providers have tried to add their own unique selling propositions where possible in an increasingly competitive space.
Traditionally, earned wage access solutions have generally fit a few models. Some are available to anyone who wants to download the app and require access to an employee’s work history or timesheets. Others can be white-labeled and given to employees as part of an HR workplace benefits package.
Regardless of the format, in recent times these platforms have become increasingly popular across a number of industries. So commonplace in fact that workplace-provider figures show that employees used an app to access earned wages 37 million times in 2019. Since the COVID-19 pandemic raised its ugly head, the use of earned wage access apps has increased by 400 percent.
What to look for in an earned wage access solution
Fundamentally, the debate as to how beneficial earned wage access is to an employer, and an employee, is directly tied to the funding model. Some companies include transaction fees and even data collection with their solutions. And others are adapting their models to ensure their on-demand pay platforms are not an extension of credit. This is in direct relation to the Consumer Financial Protection Bureau’s recent advisory opinion.
For instance, the new federal guidance from the CFPB addresses the question of if/when an earned wage access program is covered by the Truth in Lending Act (TILA) and Regulation Z. It concludes that earned wage access programs that meet certain requirements are not an extension of credit and are not subject to TILA or Reg Z.
In the wake of this advisory, many earned wage access solutions have been forced to quickly change their models – particularly those that held employees liable for overspending on their accounts or charged fees to access wages early.
With AnyDay, our vision is simple: we wanted to create a platform that had employee satisfaction and financial well-being at its core. Because of this, we structured AnyDay to be completely free to the employee while still offering a high-level, easily integrated earned wage access solution for employers. Because of our industry foresight, we were able to structure AnyDay in a way that anticipated, and therefore meets, all current regulatory requirements without any changes to our funding model.
For employees, the ability to access an advance of their earned wages at no cost, and to be able to pay bills and expenses on time with no extra fees, allows employees to break free from predatory lending and crippling cycles of debt. And with more than 75 percent of the US population living paycheck-to-paycheck, having hard-earned money when it is needed most can alleviate enormous amounts of stress.
For the employer, our solution easily integrates into existing operations and native payroll applications. Further, the AnyDay funding structure allows the employer to adopt an earned wage access solution at little to no cost and does not trigger tax withholding obligations. We are able to make earned wage access advances through AnyDay’s banking partner, who bears the liability on the advancement of funds, not the employers.
With new regulations and guidelines surrounding lending and tax implications, the importance of selecting an earned wage access provider that can execute a fully compliant EWA program that aligns with current and ongoing regulatory guidance is more important than ever.