Not having enough money to pay for life’s unexpected emergencies can really take a toll on an employee’s mental health. In turn, their productivity at work can suffer, creating a lose-lose situation for both employer and employee.
Financial products, like predatory payday loans, target people in these stressful situations and actually make the problem worse by adding to the financial burden with aggressive repayment terms. Fortunately, there’s a solution that can help reverse the negative effects of tight cash flow—earned wage access.
With earned wage access, also called income on-demand pay or income streaming, employers can create a win-win situation by helping employees tap into the money they’re on track to earn. That bit of extra liquidity from a paycheck can help reverse the cycle of stress and result in both a healthier employee and, in turn, a healthier overall workforce.
How Earned Wage Access Works
Many Americans live paycheck to paycheck. Unfortunately, this situation has snowballed over the past few decades as incomes have remained stagnant while the costs of major expenses like housing and health care have increased significantly. According to a Bankrate survey, only about 40 percent of people in the United States have funds to cover an unexpected expense like a hospital visit or a car repair without acquiring credit card debt or taking out a personal loan.
Earned Wage Access can help provide relief for employees who urgently need their money before payday. This payment system allows employees to request funds from a paycheck they’ve already earned (or that an employer makes available to them) through a mobile app connected to their bank account for direct deposit.
Then, the employer gets an invoice and repays the withdrawn amount on the normal payday. The amount withdrawn is deducted from the employee’s regular paycheck, and they receive the remainder of their earnings.
For example, if an employee withdraws $100 during a payroll period when their wage is $1,000, they will receive $900 on their scheduled payday. The advanced $100 will be paid back to the intermediary fintech and earned wage access companies.
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Key Benefits of Providing Earned Wage Access
The main advantage of offering income on demand includes the productivity boosts that stem from how the employee benefits. Employees who are struggling with financial issues may be unfocused and have negative attitudes that can spread to their co-workers. They may even want to leave your company to pursue other employment opportunities.
When an employee has more liquidity in their personal finances, their focus can shift from bill-paying struggles to other matters that benefit the workplace.
Helping employees improve their financial wellness can also help companies reduce employee turnover. Workers who aren’t struggling are less likely to look for employment elsewhere. They’re more likely to appreciate a company that takes measures to help them in a time of need. Employees gain more control over their finances, and employers benefit from increased employee retention.
What to Consider When Offering Income Streaming
Of course, like with any business decision, there are several factors to think about when you’re deciding whether to implement early wage access. For starters, you’ll need to think about how to balance employee financial wellness against the bottom line.
Employers must decide how much of an employee’s paycheck they want to make available early and how often they will allow employees to access earned wages before their scheduled payment date. They’ll also need to determine who will bear the cost of any interest or fees associated with the service—whether that’s the employer’s or the employee’s responsibility.
Here are some of the questions to consider as an employer:
- Is the wage access service compatible with my existing payroll platform?
- What is the appropriate budget for early wage access?
- How often should employees be able to access their money early?
- Who will be responsible for loan fees or interest rates for transactions?
- How will these employment benefits be communicated?
These are just a few examples of factors to consider when choosing early access services.
Options for Providing Earned Wage Access
A growing number of fintech companies are offering platforms for companies to provide instant wages to their employees. Rain caters to medium and large U.S.-based companies.
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The Bottom Line
Employers can take a more proactive role in helping their employees achieve financial wellness through Earned Wage Access. This payment system is a great way to provide better benefits and help employees avoid the stress of predatory lending practices.
If you’re considering this benefit, research the growing number of finance companies providing income-streaming services to ensure your company’s specific needs are met.
Retain happier, longer-lasting, and more productive employees no matter your industry!
