KPMG reports on how earned wage access (EWA) offers benefits to both companies and employees

Everyone wins when employees have immediate access to wages earned

(KPMG, 2020)




Even before the COVID-19 economic shutdown, the harsh fact is that many workers live paycheck-to-paycheck. They experience severe cash flow constraints, principally driven by a disconnect between daily expenses and traditional pay cycles.


Several major employers, such as Walmart, McDonalds, and Uber, have adopted EWA programs. By offering employees immediate access to cash, these companies have secured a low-cost way to attract employees and generate goodwill among their work force.


According to a recent study conducted by Visa, 79% of surveyed workers are more willing to switch to employers already offering EWA.


To offer an EWA program an organisation would typically partner with an EWA provider such as a payroll application provider or payroll outsourcing provider. The provider integrates its software with the company’s payroll system—or simply turns on the feature—so that employees can seamlessly request funds against their earned wages.


Families living paycheck to paycheck; 1 in 2 earning <$50k; 1 in 3 earning $5k-$100k'; 1 in 4 earning $150k+.

EWA to the rescue

To this end, a new method of paying employees is being adopted by a growing number of organizations, spurred on by the COVID-19 situation. It offers employees immediate access to the wages they’ve earned without having to wait for the usual weekly or biweekly payday cycle. This program, generally referred to as earned wage access (EWA), holds benefits for both organizations and their employees.


Even before COVID -19, many workers were struggling to keep up. Nearly 7 million were classified as “working poor,” and even more were living paycheck to paycheck.


The pandemic exacerbated this already growing problem. It wasn’t just low-income workers who were struggling; many middle-class and even upper-middle-class workers were finding it hard to keep up. It may come as a shock, but one in four individuals earning $150, 000 or more a year are living paycheck to paycheck. And that was before COVID-19 hit.


COVID-19 has only made this situation worse, forcing many organizations to release (or furlough) workers or cut their hours. Just under 70 percent of Americans have experienced a reduction or loss of income due to COVID-19; this number jumps to 80 percent for both

millennials and Gen Z. This harsh fact has only added to the financial anxieties of blue and white-collar workers, alike, as well as gig and freelance workers.


45Mil+ individuals in the US are considered low-income workers with volatile wages and are more likely to need assistance in the event of an unexpected expense.

They’re experiencing severe cash flow constraints, principally driven by a disconnect between daily expenses and traditional pay cycles, and need immediate access to their cash. It’s not uncommon to find white-collar employees who’ve been laid off or furloughed being

forced to use credit cards or loans to pay for their financial obligations such as home mortgages and their children’s college tuition bills.


The situation is even more dire for blue-collar, gig, and millennial workers who may not have the same access to credit-driven payment or loan options. They often end up turning to less desirable financing alternatives such as payday loans and cash advances to cover their essential expenses such as rent, food, utilities, supplies, and, in some cases, student loan repayments.


These alternative financing options typically carry very high—if not outright oppressive—interest rates, exacerbating an already dire situation. It’s a depressing catch-22 cycle that’s dramatically driven up personal debt.


How EWA programs work


EWA provides employees, freelancers and gig-workers (contractors) with access to the wages they’ve already earned ahead of their traditional payday cycle (i.e., when they normally get their paychecks or direct deposits).


[In other words] employers provide their workers with immediate access to their wages through their payroll provider or a third-party EWA vendor who partners with the payroll provider.


While there are several variations of EWAs, there are also several variations on “how”

these earned wages are provided to employees via “faster payroll” arrangements

(see below). Regardless of the structure, these arrangements offer workers near instant

access to their earned wages.


How EWA programs benefit employees and employers


How it benefits employees

Because they’re unable to access their wages prior to payday, many workers—white and blue-collar alike—may have to resort to applying for unsecured loans from banks or even predatory lenders. They may be charged very high fees, sometimes up to 400 percent for these loans.


An EWA program with faster payments can provide essentially the same level of funds but at far lower (or no) cost to the employee, and offer:

— Immediate access to cash, which is critical for those who can’t easily obtain affordable credit or need funds immediately.

— Reduced pressure on having to budget from paycheck to paycheck.

— Reduced reliance on high-interest loans to cover cash flow issues.


How it benefits organizations

Most employers (60 percent) recognise that offering programs such as EWA and faster payroll can be a low-cost way to attract and retain employees, and generate goodwill among the workforce. This can pay off in more motivated employees who go that extra mile to innovate and provide enhanced customer service.


What’s more, over 30 percent of job candidates reported that the availability of an EWA program would impact their decision to accept a position. In addition, almost 80 percent

said they would be willing to switch jobs to work for an employer offering this benefit.


EWA Increase employee satisfaction and retain talent at a lower cost with an average 20% reduction in employee turnover.

These programs also can provide companies with operational and financial benefits. For example, say a transportation services company (such as Uber or Lyft) offers instant payouts to its workforce. This may tend to incentivise more drivers to be out on the road looking

to pick up customers. This, in turn, drives down prices for riders, resulting in more people willing to use the transportation service, which drives up revenue—creating a flywheel effect.


Here’s another example: Domino’s enables workers to receive hourly pay, tips, and mileage reimbursements at the end of their shifts through a digital account. This arrangement helps offset the company’s budgetary limitation on increasing wages. It also eases the franchises’

cash flow crunch since the payroll provider fronts the money to ensure that funds are available to the workers after every shift.


Depending upon the mechanism for funds delivery, EWA programs can also be set up in a way that offers cross-selling opportunities and new revenue streams for an organisation. For instance, retail operations may be able to offer workers an instant funds availability mechanism that passes a commission and fee onto their employees.


In summary, EWA offers businesses a way to:

— Reward and incentivise workers at a low cost, boosting recruitment efforts while reducing employee dissatisfaction/turnover.

— Provide value-added services to employees (e.g., financial advice, forecasting, overdraft protection, local store discounts).

— Reduce the timeline for payroll onboarding.

— Potentially generate new revenue streams (e.g., from fees or value-added services) and keep funds in-house.


You can read the full report by KPMG here.