What Is Earned Wage Access & How Does It Work?

Imagine having the power to access the money you've already earned whenever you need it, without waiting for your next paycheck. This revolutionary payroll solution is known as earned wage access (EWA), and it's reshaping how employees and employers think about compensation.

According to HR.com’s The State of Employee Well-Being study, 72% of Americans are financially stressed. This truth has fueled the rise of EWA, a tool many employees look to for relief from immediate expenses.

Whether you're an employee seeking financial empowerment or an employer searching for innovative ways to support your staff, this guide will uncover what you need to know about earned wage access.

First, here are the key things to know about EWA:

  • Earned wage access (EWA), also known as on-demand pay, enables employees to receive a portion of their earnings as soon as they've earned it. 
  • For employees, EWA promotes financial flexibility, encourages budgeting, and helps break the cycle of debt.
  • For employers, EWA helps improve employee financial wellness, increase employee retention, and boost job satisfaction.
  • Employers or employees ready to reap the benefits of EWA will require the help of an EWA platform, such as Clair.
  • EWA platforms connect to payroll systems to gather pay data, which is then used to calculate how much an employee can receive on demand.

    What Is Earned Wage Access (EWA)?

    Earned wage access, also known as on-demand pay, represents a paradigm shift in the traditional payment cycle. Instead of waiting for the traditional payday cycles, EWA lets employees access a portion of their earned wages as soon as they end their work day.

    This approach not only fosters financial flexibility but also empowers employees to cover unexpected expenses, avoid costly debt cycles, and take control of their financial freedom.

    The Benefits of Earned Wage Access

    Let's talk about the benefits of earned wage access for both employees and employers.

    For Employees

    Earned wage access has emerged as a lifeline for employees seeking greater control over their finances, offering a range of compelling benefits that extend far beyond the immediate relief of covering bills or unexpected expenses.

    For example, EWA:

    • Promotes financial flexibility: With EWA, employees can access a portion of their earned wages ahead of the traditional pay cycles. This newfound flexibility bridges the gap between paychecks and grants the ability to address immediate financial obligations.
    • Reduces financial stress: EWA effectively mitigates financial stress by offering a safety net for unexpected expenses, medical emergencies, or sudden bills. With the assurance that they can access their earnings when needed, employees can focus on their work without the constant worry of impending financial crises.
    • Breaks the cycle of debt: Emergency expenses often force employees into the vicious cycle of borrowing or taking out high-interest loans. EWA disrupts the cycle by providing an alternative source of funds that doesn't require accumulating debt. Employees can avoid costly interest rates and the long-term burden of repayment, leading to a healthier financial future.
    • Encourages budgeting and planning: EWA encourages responsible financial management by allowing employees to plan and budget more effectively. With employees having instant access to their earnings, they can allocate funds for upcoming bills, rent, or other necessary expenses with greater control.

    For Employers

    Adopting earned wage access presents several transformative benefits for cultivating a thriving workforce. Let's explore how employers can benefit from offering EWA:

    • Enhances employee financial wellness: Offering EWA to employees provides them with a lifeline, reducing their financial stress and enabling them to cover immediate expenses without resorting to payday loans. As a result, employees can focus more on their work, leading to improved job performance.
    • Increases employee retention: When employees feel that their financial needs are being addressed, they're more likely to stay loyal to the organization. Offering EWA to support employees contributes to higher employee satisfaction, ultimately leading to increased retention rates.
    • Attracts top talent: EWA is one of the most sought-after employee benefits, and many job seekers now prefer this benefit more than other traditional benefits.
    • Increases job satisfaction and loyalty: When employers offer EWA, they're seen as an organization that showcases their commitment to employee well-being. This not only enhances job satisfaction but also boosts loyalty and retention rates. Employees feel valued and supported, fostering a positive relationship between them and the company.

    How Does Earned Wage Access Work?

    EWA platforms work by connecting seamlessly with an employer's payroll systems. These systems gather data on employee work hours, shifts, and wages earned in real-time, which helps calculate the earned wages that are available for employees to access.

    Employees can then request access to a portion of those wages through a mobile app or online portal provided by the EWA platform. This request is typically subject to certain limits or a percentage of the total earned wages.

    EWA platforms verify the employee's eligibility and the amount of earned wages available to advance. This step ensures that the employee has actually earned the requested funds and that they haven't exceeded any predefined limits.

    Earned Wage Access vs. Other Methods

    Earned wage access, just like other methods, offers quick access to funds. However, these other methods often come with financial pitfalls that can negatively impact an employee's finances.

    Let's dive into some key differences between EWA and these traditional approaches, including cash advances and payday loans.

    Earned Wage Access Cash Advances Payday Loans
    Nature Access to already-earned wages before payday Requires borrowing against future income High-interest, short-term loans
    Loan/Interest Can either be structured as a loan or not. Other providers charge fees. Deduction from the next paycheck (can lead to a debt cycle) High-interest rates (can lead to a debt cycle)
    Costs Zero or minimal fees May have fees reducing the actual amount received High interest makes repayment difficult

    How to Get Started With EWA for Employers

    As an employer committed to the well-being and satisfaction of your workforce, implementing earned wage access can be a game-changer. EWA not only empowers your employees with greater financial flexibility but also positions your organization as an advocate for their financial wellness. Here's how to get started with EWA for employers.

    Step 1: Select the Right EWA Provider

    Choosing the right EWA provider sets the foundation for successful implementation. Look for a provider that offers:

    • A user-friendly app: The right provider will offer an intuitive platform that both employers and employees can easily navigate, like Clair’s easy-to-use digital banking app.
    • Seamless integration: Ensure the platform is compatible with your existing payroll and HR systems for smooth data sharing.
    • Transparent pricing: Clair’s Earned Wage Advance feature is free for employees and free for employers to offer. This is a clear deviation from most EWA providers, who charge fees for every transaction requested by employees.
    • Security and compliance: Unlike other providers, Clair has partnered with Pathward, a bank that handles the lending part of Clair’s EWA. All bank accounts that employees get from Clair are FDIC-insured, which guarantees the safety and security of each employee.

    In addition to the above benefits, Clair offers features like free withdrawals from 40,000 in-network ATMs, high-yield savings accounts, and an easy-to-use digital banking app.

    Ready to get started?

    Step 2: Onboard Your Employees

    Communication is critical to a successful EWA rollout. Inform your employees about this innovative benefit and explain how it works. In many cases, all your employees must do is download an app and enter their information to get started.

    You can also partner with your EWA provider for onboarding. Clair's onboarding process is designed to be simple and hassle-free, both for employees and employers.

    With Clair, there's no need to wait for any sort of approval or open enrollment; employees can sign up and onboard at any time. This flexibility ensures that they can start using on-demand pay without unnecessary delays.

    Step 3: Champion EWA Throughout Your Organization

    Employers play a pivotal role in promoting the benefits of EWA. Advocate for EWA across your organization and emphasize how it aligns with your commitment to employee well-being.

    More than financial wellness resources, Clair provides helpful marketing support that can help you drive the proper implementation of EWA in your organization to ensure its successful adoption.

    Get Started With Earned Wage Access Today

    Earned wage access offers transformative benefits for both employees and employers. And with Clair, you can access even more benefits through our suite of financial wellness tools. Whether you're an employee or an employer, get started with Clair today to begin the journey toward financial empowerment.

    Earned Wage Access FAQs

    How Much Does Earned Wage Access Cost?

    The cost of earned wage access can vary depending on the provider you choose and the specific terms they offer. Some providers may charge fees for accessing earned wages ahead of payday, while others might offer this service free of charge. Clair works with employers to provide this benefit without passing on transaction fees to the employees.

    How Much of Their Earnings Can Employees Request?

    EWA providers calculate how much employees can advance in many ways. With Clair, employees can advance up to 50% of their daily gross (pre-tax) earnings. Employees can keep advancing up to the amount of the last paycheck they received in their Clair Spending Account, but the maximum they can advance in any pay period is $1,500.

    Will Earned Wage Access Affect Payroll?

    Clair has no impact and does not require any changes to your existing payroll processes. When an employee signs up for Clair, they open a new bank account. To be eligible for wage advances, employees must update their direct deposit to their new Clair Spending Account in your payroll system.

    When you process payroll, you simply send paychecks to each employee's Clair Spending Account, removing any administrative lift on your end.

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