What is ‘Earned Wage Access’?

Earned Wage Access, or Instant Pay Access is the latest in “trendy” employee benefit making its way across the Atlantic.  Described by providers as “financial wellness”,  it allows employees to access wages earned at the end of each shift, instead of a formal weekly or monthly payday; “helping workers control when they get paid”.

It is mainly being offered to lower-paid labour roles such as healthcare workers, security officers, cleaners, fast-food and retail workers. As an employee, “on-demand” access to money earned, can give the feeling of control over wages, offering instant access to wages when needed. Leading providers boast of benefits to employee wellbeing, financial freedom, as well as helping to increase shift rates. However, this alternative payment model creates and accelerates the already common socio-economic problems experienced by many “lower-paid” workers, under the illusion of financial control.

Why is ‘Earned Wage Access’ a problem?

  • Like many ‘Cash-Til-Payday’ loans of the early 00s, this instant cash access comes at a premium. Many companies offer their service at a premium either via membership, a percentage of withdrawal or fixed charge. Ultimately, they are exploiting someone’s immediate need to access the money they have earned.
  • Alternatively, some providers of ‘Instant Wage Access’ will only offer pay-outs for overtime worked, encouraging poor shift management, over-working and workplace fatigue – the dangers of this can be read about in our fatigue management blog.
  • Employees who sign-up for ‘Earned Wage Access’ or ‘Instant Pay Access’ are often not offered financial advice, financial management support or other responsible guidance, which may help them build a more sustainable future. Once commencing use of services such as EWA, people are often trapped into an “on-demand” cash cycle, making it extremely difficult to successfully manage their money long-term.
  • The format of the payment model makes it near impossible for an employee to save for their future, creating financial stability for themselves and families. For example, £70 a day cash in your hand might seem great at the time to be able to pay for food or other immediate day-to-day needs; but it makes it extremely difficult to budget percentages of this rent, bills, unexpected outgoings (e.g. car failure) etc. EWA offers very little flexibility to save for an emergency or rainy day – integral to many people’s future.
  • It can become an impossible cycle to break out of once it becomes relied upon, keeping people in working poverty. Once you start being paid daily, it can be challenging to adjust to or prepare for a different pay schedule, e.g. if moving to a new a company offering better wages, but on a monthly pay cycle. How many low paid workers could make that kind of change, especially if they had dependents?
  • Financial instability and the stress of living paycheck-to-paycheck has huge knock-on effects on physical, mental, and emotional wellbeing. According to Money & Mental Health Organisation, over half of the people who experience long-term financial instability or problem debt also struggle with their mental health. In many cases, the shorter the payment schedule, the higher the risk of problems with mental health.
  • Poor employee health leads to increased sick days, lower output of work, and higher staff turnover as employees seek better opportunities elsewhere. This costs employers in recruiting, training, and poorer quality work leading to mistakes.

One leading “On-Demand Payment” provider claim using their services can increase job application by 30%, increase employee retention by 20% and lower absenteeism by 13%. As we’ve identified above, some people may feel obligated to go to work or tethered to the on-demand payment system, just to guarantee income – instead of putting their own wellbeing first.

What is the antidote to ‘Earned Wage Access’?

Comparing similar statistics side-by-side, paying a real living wage sees a 75% improvement in job retention and a 53% increase in job applications, as detailed on The Living Wage Foundation website. As a member of the Living Wage Foundation, we’re committed to paying a fair wage for fair work, as well as ensuring our supply chain do too. The benefits to a business, employee wellbeing, local economy and society are far-reaching. To find out more about our commitment to paying the Living Wage, please read our blog ‘What it means to be a Living Wage Employer’.

As well as paying more, businesses could provide employee benefits which would truly lead to long-term financial wellness. Distributed through our payslips, all Expeditious Services employees have access to financial planning tools, preferential rates on life insurance, desirable discounts and other opportunities to create savings in their daily-life – and we’re continually adding to the list of additional value we bring to employee’s lives. We believe in supporting our employees to have the autonomy and tools to effectively manage their money and financial wellbeing for the long-term, bringing better retention and better quality of work.

Final thoughts

Many businesses using “instant pay” services offer low hourly rates of pay and/or zero-hour contracts. They dangle the carrot of “financial freedom” as an employee perk with earned wage access, in-lieu of paying adequate rates and offering employees fair rights and respect – which would open the doors to a more sustainable future for both employer and employee. Framing accessing low wages on-demand as a benefit when really it can cause tremendous long-term damage and significant workplace culture shifts are needed.