Implementing an earned-wage access program may help employees struggling financially because of the coronavirus outbreak, payroll professionals said March 16. Employers seeking to offer an earned-wage access program, also known as on-demand pay, as an employee benefit must ensure that a selected vendor is able to meet a variety of requirements.
Several pandemic-related relief measures soon may end that allow payment deferrals for rent and other expenses, and many consumers anticipate that they will struggle to make bill payments on time, said Sarah Grotta, director of debit and alternative products for Mercator Advisory Group.
In a survey of workers earning less than $75,000 per year, nearly half responded that they run out of funds at least occasionally before receiving new pay, Grotta said at the American Payroll Association’s online Capital Summit. Those surveyed tended to rely on credit cards or personal savings when bill payment deadlines arose before receiving the next paycheck, she said.
Earned-wage access programs may allow workers to more quickly pay bills and emergency expenses, allowing those workers to avoid potentially costly methods for bridging the gap between wage payments, Grotta said.
Employers should use a strategic approach to selecting an earned-wage access vendor to ensure that the program meets standards for compliance and functionality, said Patricia Kerekes, payroll director at AutoZone Inc.
When deciding to implement an earned-wage access program, a team of stakeholders should be formed to ensure that all departments that could be affected by the program are prepared for changes and potential hurdles, Kerekes said.
The team should consist of the employer’s payroll, human resources, and information technology departments, as well as legal counsel, Kerekes said. Including third-party legal counsel may be necessary for more in-depth understanding of potential compliance risks that could be associated with an earned-wage access program.
A company-funded process can trigger constructive receipt of wages and tax withholding obligations, said Matthew Kopko, vice president of public policy at DailyPay. Additionally, a payment process recovers the payments through wage deductions may not be compliant with state wage deduction laws. There also are potential regulatory risks for processes that debit an employee’s bank account, Kopko said.
Employers also must ensure that more money is not transferred to the employee than what is earned, Kerekes said. Taxes, benefits, and garnishments should be taken into account.
After becoming familiar with potential compliance concerns, the team should identify the desired components of an earned-wage access model, Kerekes said. Components should be grouped according to priority: the team may decide that some features are necessary for compliance, security, and ease of implementation, while other features may be more negotiable.
The compatibility of a program’s technical requirements also must be assessed. Among the technical considerations are whether the company’s payroll and timekeeping systems are managed internally or by a third party, processes for transferring data between systems, and the possibility of automating any parts of a new process.
Implementing an earned-wage access system may require new staff members to help maintain aspects of the program, Kerekes said. The implementation team should determine whether the provider includes support services for addressing employee questions and concerns that may arise as they access wages. If that service is not provided, new staff may need to be hired to provide support, or existing staff may need training to be able to assist employees.
Keeping track of usage metrics is important for determining whether the selected program is effective, Kerekes said. The implementation team should make expectations clear with regard to ability to evaluate the program and meet success standards.
When a vendor has been selected and the program soon is to be launched, prepare internal communications to introduce the new benefit to employees, Kerekes said. Employers should identify potential participants and decide whether messaging for the rollout should be altered for employees according to their pay or job functions, as these factors may cause employees to have different reasons to participate.
Employer, Employee Benefits
Earned-wage access programs may help retain employees and aid in recruiting talented workers, Kerekes said. Implementing a program may increase the volume of applications and increase applicant quality, she said.
Additionally, a program may boost morale and reduce distractions from employee financial instability, Kerekes said.
Accessing earned wages allows employees to save money by avoiding overdraft and bank fees, Kopko said.
In a user survey conducted by DailyPay, overdraft and late fee payments declined 74%, and most respondents who frequently paid such fees before becoming users no longer were doing so, Kopko said. Eighty-five percent of DailyPay users said that they had increased ability to make large monthly payments, such as for rent and utility bills.
Additionally, the average user decreases usage of earned-wage access because of increased financial stability, Kopko said.