What is ‘Earned Wage Access’?

Earned Wage Access is the latest trendy employee benefit making its way across the Atlantic. If you don’t know what it is, a leading “financial wellness” provider’s website sells their services as “Helping Your People Access Their Money When They Need It. Empower Your People To Take Control Of Their Wage So Your Business Is Free To Thrive”. In short, it allows employees to access their 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 aimed at lower-paid roles (e.g. retail, fast food outlets and security officers), people already likely to be experiencing financial hardships and income instability, under the illusion of financial freedom. As an employee, “on-demand” access to money earned, can give the feeling of control over wages. However, this alternative payment model creates and accelerates the already common socio-economic problems experienced by lower-paid workers.

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. The companies offer their service at a premium either via membership, a percentage of withdrawal or fixed charge, exploiting someone’s immediate need and lowering their pay.
  • Employees who sign-up for ‘Earned Wage Access’ are often not offered financial advice, financial management support or other responsible guidance, which may help them build a more sustainable future. This increases their reliability on these surveys, trapping them in an “on-demand” cash cycle.
  • The format of the payment model makes it near impossible for an employee to save for their future and create financial stability for themselves. For example, £70 a day cash in your hand might seem great to be able to pay for food or other immediate day-to-day needs; but how easy would it be to manage percentages of this amount for rent, bills, unexpected outgoings (e.g. car failure) etc. It offers no 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 hand-to-mouth 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 struggle with their mental health.
  • Poor employee health leads to increased sick days, the lower output of work, and higher staff turnover as employees seek better opportunities elsewhere. This costs employers in recruiting, training, and poorer quality work.

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.

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.

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.

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’.