Earned Wage Access (EWA): A CFO's Introductory Guide

The Rise and Popularity of EWA

Earned Wage Access (EWA) services, which allow employees to access a portion of their earned wages before payday, have grown significantly in popularity over the past decade, enabling workers to manage liquidity between paychecks. Proponents of EWA argue that the biweekly pay cycle is outdated—according to the U.S. Bureau of Labor Statistics, 43% of employers used this cycle in 2023.

Fintech companies began offering EWA in the mid-2010s, and research by Marshall Lux and Cherie Chung of Harvard Kennedy School shows that adoption accelerated during the COVID-19 pandemic. The report notes that in industries with high employee turnover, such as retail and food service, unbanked or underbanked workers often use employer-provided apps to access wages in advance to cover expenses or emergencies. According to ADP, a global online payment provider based in Roseland, New Jersey, by 2022, four out of five employers offered EWA. Some EWA providers also operate independently of employers, offering services directly to consumers.

The Case for EWA and Its Potential Benefits

Proponents of EWA highlight its many benefits, such as improved employee retention, the cost-neutral nature of many EWA programs for employers, and enhanced financial well-being for employees. They argue that EWA is a safer alternative to payday loans because fees are typically lower and users are not subjected to aggressive collection practices.

Regulatory Controversy and Recent Developments

Recently, EWA has made headlines as regulators and advocates debate its merits and drawbacks. In July 2024, the U.S. Consumer Financial Protection Bureau (CFPB) issued a proposed rule that would treat EWA payments as consumer loans and mark any fees as finance charges, drawing criticism from the industry. A CFPB data study of eight companies offering EWA in partnership with employers from 2021-2022 found that employees used such services an average of 27 times per year, paying interest at annual rates exceeding 100%, as reported by Payments Dive.

As employee demand for EWA grows, its rollout presents several issues for CFOs. Experts say CFOs should focus on the regulatory uncertainty surrounding EWA, the importance of protecting employee data when partnering with third-party EWA providers, and the long-term impact of EWA on employee finances. Below are key questions finance teams considering offering EWA need to address:

1. What is the typical structure of EWA?

EWA comes in two basic forms: employer-provided EWA, which typically involves integrating payroll and timekeeping systems with a third-party EWA platform; and direct-to-consumer EWA, where a non-employer company uses a range of data points, including cash flow, to determine the portion of wages an employee can access before payday.

For employer-provided EWA programs, users typically receive funds via ACH transfer, with delivery times of one to three days. According to the CFPB's July report, instant transfers typically cost between $1.99 and $5.00 per transaction. The CFPB stated that most employers do not cover this fee.

2. What are the advantages for companies planning to launch EWA?

Ken Brause, CFO of EWA provider DailyPay, believes the product is a win-win for companies and employees: he claims employees already expect EWA, there is no additional cost to employers (at least for DailyPay's EWA product), and it helps retain employees, reducing turnover costs.

"It's a very simple ROI calculation," Brause said. "If you have call center, warehouse, or retail professionals, and you're losing productivity due to turnover, that's real ROI."

A 2021 Harvard Business School study of transaction data from Minu, an EWA provider in Mexico, found that employees using EWA were 10-15% less likely to leave than similar employees who did not use it.

The EWA process also establishes a digital payment system that avoids the use of expensive paper checks outside the regular biweekly pay cycle. Philadelphia-based home healthcare provider AmeriBest said it previously used paper checks for payments outside the regular cycle. Before introducing EWA, AmeriBest issued an average of 75 checks every two weeks, at a cost of $25 per check including labor, said Chief Operating Officer Bob Kane. With EWA, employees can access wages electronically before payday, eliminating the costs associated with paper checks.

"When caregivers were late submitting timesheets, we had to print manual checks, so offering on-demand pay has been helpful," he told CFO Dive. "It has also helped us promote the adoption of electronic visit verification, which is a state mandate in Pennsylvania."

3. What risks does EWA pose to employers?

Terri Bradford, senior payments specialist at the Federal Reserve Bank of Kansas City, said that while EWA can encourage employee retention and serve as a tool to promote financial health for paycheck-to-paycheck workers, its rollout also presents some risks for employers. She told CFO Dive that employers may be unaware that employees are using different direct-to-consumer EWA services on top of employer-provided EWA, which could expose employees to financial risk.

"It can be a benefit, but the question is you might get into a cycle of using it," she said. "We're used to getting paid on the 15th and 30th or once a month, and we plan our bills and payments accordingly, so if you get paid more frequently, how does that psychologically affect your ability to think long-term?" Bradford noted that fees for instant payments or tips can also accumulate over time.

She also said businesses should be aware of the risks of integrating payroll systems with third-party providers, which can raise security and privacy considerations.

Additionally, while EWA may be a solution for paycheck-to-paycheck employees and beneficial for employers looking to retain more staff, the rationale for offering EWA also raises questions about why payroll systems themselves do not offer more frequent pay cycles than the standard biweekly schedule, Vallée said in an interview.

"I think the question is, why doesn't the company's payroll system simply pay more frequently?" he said. "Maybe the simpler solution is to pay weekly or every five days, right?"

4. Why has EWA become a target for regulators, and will it change under the Trump administration?

Regulators have been trying to address whether EWA payments should be considered credit. The CFPB's proposed interpretive rule treats earned wage access products as consumer loans subject to the Truth in Lending Act, meaning lenders must disclose costs and fees to users.

"The CFPB's action will help workers understand these products and prevent a race to the bottom in business practices," CFPB Director Rohit Chopra said in a July press release.

Although it remains unclear what impact the new Trump administration will have on EWA, Payments Dive reported that Chopra's successor may revisit EWA and other payment services.

Meanwhile, states do not regulate EWA uniformly, with some treating EWA payments as credit (where any fee is considered a finance charge) while others declare these transactions are not credit.

"Much of the regulation is piecemeal," wrote A.J. Dhaliwal, Mehul Madia, and Maeve O'Leary of the law firm Sheppard Mullin Richter & Hampton LLP in Law360 in October. "The uncertainty of state guidance leaves EWA providers unsure of how to comply with the law or offer their products."

Given the regulatory uncertainty surrounding EWA, Bradford suggested in her May research paper that companies may take a cautious approach to adopting EWA. "The uncertain regulatory environment in which EWA providers operate may lead some businesses to delay offering EWA until regulations become clearer. Businesses are also concerned about the reputational risks associated with EWA services," she wrote.