19 Jul 5 Reasons Why Access to Earned Wages is Crucial for Financial Stability
Nearly half of American workers live paycheck to paycheck.
When they’re hit with a surprise bill, they need money fast. This is why earned wage access (on-demand pay) offers real, tangible value for employees and employers.
It is a powerful tool that allows hourly workers to avoid the expensive payday loans and credit card debt that can quickly spiral out of control.
It Helps Employees Build a Savings Habit
When workers have to wait for two weeks or more between paychecks, paying their bills and keeping up with essential expenses can make it difficult. This can lead to stress and financial pressure, leading them to take out payday loans, pawn items, or borrow money from friends or family. This type of credit can negatively impact their credit score and trap them in a cycle of debt.
How is then the access to earned wages? Offering on-demand wage access can alleviate this financial stress for employees. With this option, employees can receive a portion of their earnings days or even instantly for a small fee. They can then deposit the remaining amount on their regular payday. This can save them the stress of finding alternative financing or resorting to payday loans, which often carry high-interest rates.
The demand for on-demand wage access is growing, and employers that offer it can have an edge when competing to attract hourly workers. Learn about isolated On-Demand Pay to see how your organization can benefit from this innovative payroll solution.
It Helps Employees Avoid Payday Loans
For many employees, waiting a week or more to receive their paycheck leaves them in a precarious financial position. They may be tempted to seek out traditional forms of borrowing like high-interest loans from 3rd party lenders, pawning personal possessions, or credit card debt that traps them in a cycle of payments and interest fees.
Many employers offer earned wage access (EWA) to help employees avoid payday loans. EWA is an app-based solution that gives employees earlier access to their wages — without impacting the payroll process – so they can pay bills, make purchases and manage their finances more efficiently.
Unlike payday loans, a money advance product like EWA doesn’t charge employees interest. The app-based service also doesn’t require a credit check or impact employees’ credit scores. This helps ensure the products are used responsibly and are not viewed as a substitute for credit cards or other more costly forms of borrowing. It also helps protect employee data and privacy. These apps are a great tool to help employees avoid payday loans and should be considered part of an overall strategy to improve employee financial wellness.
It Helps Employees Avoid Credit Card Debt
Access to wages on-demand can help employees avoid payday loans and credit card debt, which often carry high-interest rates and trap people in a cycle of debt they can’t escape from. In addition, by reducing financial stress and giving workers a steady paycheck, EWA can help increase employee retention. This is a win for companies that must pay the cost of hiring and training new employees.
Earned wage access, also known as on-demand pay or instant pay, is a new payroll system that allows employees to withdraw their net earned wages at any time of the month. This new approach to pay is different from traditional bi-weekly and monthly paydays, and more and more companies are using it because of its ability to improve workforce stability and boost productivity.
Many hourly workers live paycheck to paycheck, and the COVID-19 pandemic has exacerbated that trend. A recent survey found that only 44% of Americans could cover an unexpected $1,000 emergency expense with savings. Offering an on-demand pay solution like earned wage access gives workers financial flexibility and control, reducing their stress levels and boosting attendance and productivity at work.
It Helps Employees Avoid Payday Lenders
With wages coming in just once per month, employees struggle to form the habit of saving. When unexpected expenses pop up between paychecks, they turn to payday lenders for cash advances. These high-interest loans are often a short-term solution, but they can create long-term financial trouble. By offering earned wage access, you can help your team avoid these costly debt traps and instead build savings for themselves.
In addition to helping your team avoid payday lenders, on-demand pay helps improve employee morale. Having enough money for hourly-paid employees can lead to absenteeism and positively impact work performance. When an employer offers earned wage access, it eliminates this problem and allows employees to focus on their jobs.
With earned wage access, your employees can use an app to request their wages before payday. This system is different than a payday loan because it does not require a credit check, and the money they advance is deducted from their next paycheck. This allows employees to budget for the future and provides greater flexibility.
It Helps Employees Build an Emergency Fund
Especially for hourly paid employees, fluctuating income can make maintaining a consistent savings habit difficult. Earned wage access can help them ensure that cashflow problems do not impact their financial health by giving them a more flexible way to save and build an emergency fund.
Often called on-demand or instant pay, earned wage access lets employees use a portion of their paycheck before it hits the bank. This can cover expenses like groceries and bills or help fill the gap between two wages. The best part is that it can be offered to employees at no extra cost to the company.
Financial stress is a constant distraction for many employees, preventing them from doing their best work. Benefits, like earned wage access, can give employees better control over their finances, helping them avoid high-interest predatory payday loans and credit card debt. In turn, this can help reduce absenteeism and increase productivity. Moreover, it can help employees feel more confident meeting their financial obligations, even during the Covid-19 pandemic.
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