What is earned wage access

Earned wage access (EWA) is a financial service that allows employees to access a portion of their earned wages before their scheduled payday. This service is designed to help employees manage unexpected expenses and reduce financial stress by providing timely access to their earned income.

How EWA Works

• Set up your app or platform and link your bank account. Your employer will determine the platform, which will probably be linked to their payroll system. It will display how much of your paycheck you earned.
• Request a part of your paycheck. Depending on the app, or your employer, you will see a limit of how much of your paycheck you can request.
• Review terms and potential fees. Depending on the app or employer, you may be charged a fee when making your request.
• The advanced amount is deducted from the next paycheck, ensuring a seamless repayment process.

Pros of earned wage access

The primary benefit of EWA is the immediate access to earned wages, which can be crucial during financial emergencies. This access helps employees avoid late fees, overdraft charges, or the need for high-interest payday loans. Additionally, EWA services do not require credit checks, making them accessible to a wider range of employees, including those who might not qualify for traditional financial products.

Cons of earned wage access

While EWA offers significant advantages, there are potential drawbacks to consider. The most obvious is that you might get a smaller paycheck on the actual payday because of past advances. This situation requires careful financial planning and budgeting to avoid shortfalls. Additionally, if not managed carefully, using EWA could lead to overdraft fees, adding to financial strain.

Earned wage access vs. cash advance

Similarities:

• No credit checks: Both EWA and cash advance apps bypass traditional credit checks, avoiding both soft and hard inquiries.
• Limited loan amounts: EWA services allow employees to access a portion of their earned wages before payday. Limits may vary depending on the employer and may be subject to daily maximums. Cash advance apps typically limit advances to about $200, although some may offer up to $500 or more.
• Quick access to funds: Users of both EWA and cash advance apps can expect to receive funds swiftly, generally within a few days. There is often an option to expedite this process for an extra charge.

Differences:

• Involvement of employer: EWA services require a partnership between the service provider and the employer to be available to employees. Cash advance apps can be downloaded and used by people from an app store without any employer's help.
• Criteria for cash advances: The amount available through an EWA service is directly linked to the user’s paycheck, with possible restrictions set by the employer. For cash advance apps, the available amount is influenced by the cash flow in the user’s bank account.
• Fee structure: Generally, EWA apps tend to have fewer fees compared to cash advance apps. While EWA apps might charge for fast transfers, cash advance apps often include fast-funding fees, optional tipping, and sometimes a monthly subscription fee.