Despite rising wages, many Americans are still living paycheck to paycheck. A Bankrate survey conducted in December 2023 found that only 44% of adult Americans would pay an emergency expense of $1,000 or more from their savings. With earned wage access—also known as early pay, on-demand pay, daily pay, instant pay, and same-day pay—employees can withdraw money from their paychecks before their scheduled paydays when such unexpected expenses arise.
The pandemic and rising prices have driven a rapid expansion of this option in recent years. The Consumer Financial Protection Bureau (CFPB) estimates that the number of transactions processed by service providers that work with employers offering earned wage access grew by more than 90% from 2021 to 2022, with more than 7 million workers accessing approximately $22 billion in 2022. A 2022 survey of 200 middle-market companies found that 70% were already offering some form of earned wage access, and another 24% expected to offer it soon.
Here’s what you need to know if you’re considering providing this financial wellness service as part of your employee benefits.
Earned wage access in a nutshell
According to the CFPB, nearly three-quarters of workers are paid biweekly or monthly. This lag between paydays can cause cash flow problems that force employees to turn to payday loans, credit cards, cash advances, or other options with high interest rates.
With earned wage access, though, employees can tap part of their upcoming paycheck to get money they’ve earned before their regular payday. Employees can usually get the money for free within one to three business days, or sooner for a fee (more on the fees below). The funds are generally distributed through a direct deposit to a bank account but could be deposited to a digital wallet, prepaid card, or other vehicle.
The amount an employee can withdraw varies by the service provider. It could be as high as 100% of accrued earnings or limited to a smaller amount.
Earned wage access transactions generally haven’t been considered to be loans—it’s money employees have already earned, after all. But, as we’ll discuss below, that’s being called into question by federal and state regulators and legislators.
The two models
Earned wage access has developed under two primary models: employer-sponsored (or employer-partnered) and direct-to-consumer (DTC).
With the former, the employer contracts with a third-party company that provides the funding for early withdrawals. The early wage access provider uses the employer’s time and attendance records to determine the actual wages an employee has earned but not yet received. The provider is repaid via a payroll deduction on payday and usually doesn’t have access to the employee’s bank account.
Most employer-sponsored earned wage providers include both free and fee-based options for the receipt of funds. Free options typically include:
- An ACH funds transfer to the employee’s bank account in one to three days,
- Instant receipt of funds on the service provider’s payroll, prepaid, or debit card,
- Visiting a specified retailer to obtain funds,
- Taking the funds on a designated retailer’s gift debit card, or
- Employer-subsidized funding of some or all of transfers.
In the DTC model, the employee engages directly with the service provider and the employer isn’t involved. Providers generally require some access to recent pay stubs or proof of regular bank deposits and bank account transactions to determine each employee’s earned wage access limit. Repayment is usually made by directly debiting the user’s bank account on payday.
The pros and cons
Before adding earned wage access to your employee benefits package, you should weigh the potential advantages and disadvantages for both you and your workers.
From an employee’s perspective, earned wage access is appealing because it doesn’t come with a credit check or income requirement and doesn’t affect their credit score. It’s less expensive than payday loans and doesn’t carry any risk of debt collection. Employees don’t have to worry about facing big balloon payments or pricey rollovers when they can’t repay a payday loan on time.
But earned wage access also means a smaller paycheck and usually lower bank account balances as a result. Employees could incur overdraft fees if they have set up autopayment for bills and their accounts don’t have sufficient funds when the bills are due. And earned wage access can become a costly habit.
The CFPB recently analyzed data from eight service providers of employer-sponsored earned wage access, representing just under half of the employer-sponsored market. It found that the average worker had 27 earned wage transactions per year. The share of workers who used earned access at least once a month jumped from 41% in 2021 to nearly 50% in 2022.
The California Department of Financial Protection and Innovation (DFPI) reported in 2023 that the average number of times individuals used earned wage access totaled 36 transactions per year. In a June 2023 paper, researchers at the Harvard Kennedy School revealed that more than 75% of 1,000 respondents with earned wage access experience indicated they were using the money to pay for regular bills rather than emergency expenses.
On the employer’s side, earned wage access is a financial wellness employee benefit that can pay off with improved productivity, recruitment, and retention. In PwC’s 2023 Employee Financial Wellness Survey, 57% of employees said finances are the top cause of stress in their lives.
Sixty percent of full-time employees surveyed are stressed about their finances, and the concern isn’t limited to low-income workers. Nearly half of employees earning $100,000 or more per year are stressed about their finances.
Significantly, forty-four percent of respondents said personal finance issues have been a distraction at work. More than half of these respondents spend three hours or more per week at work dealing with or thinking about issues related to their personal finances. In other words, employee financial stress hurts your business and these employees are less engaged and more likely to look for other jobs. Earned wage access could help mitigate these effects.
Moreover, research shows that employees increasingly expect financial wellness options in their employee benefits. About three-quarters of employees surveyed said earned wage access was important for their employer to offer. Younger employees largely drove this result, with 82% of Gen Z and 91% of Millennials stating that earned wage access is important, compared with 57% of Gen X and Baby Boomers.
Among American workers aged 18–44:
- 83% think they should have access to earned wages at the end of each day or shift,
- 80% would prefer to have wages automatically deposited as they earn them,
- 78% say free access to on-demand wages would increase their loyalty to their employer, and
- 81% would take a job with an employer that provides free access to on-demand wages over an employer that doesn’t.
Unlike employer loans, employer-sponsored earned wage access won’t disrupt your cash flow because it’s done outside of your payroll. The provider covers the earned wage distribution and is repaid when payroll is processed.
But what if your employees have a bad experience, or the service provider somehow drops the ball? Anything from excessive fees to a data breach could tarnish your employer brand and reputation. Employers offering earned wage access also have to deal with the risks that come from the current lack of regulatory clarity (see below).
The fee issue
Not surprisingly, debates about earned wage access often center around the associated fees. Although fees for immediate access in employer-sponsored programs are usually on the lower side—and some employers subsidize the fees—the fees in DTC programs can add up quickly.
Fee-based options among DTC earned wage access companies include expedited payment fees, per-transaction fees, and subscription fees. Fees for expedited payment range from $0.49 to $13.99 depending on the provider and the turnaround time. Monthly subscription fees typically run from $1 to $9.99.
Plus, some DTC companies solicit “tips” from users. The DFPI study found that the average tip amount is $4.09, and tip-based service providers receive such fees 73% of the time. Employer-sponsored earned wage access providers typically don’t solicit or accept tips.
The CFPB says that, in 2021 and 2022, roughly 90% of workers using the service paid at least one earned wage access-related fee. Among the companies in its sample that collect fees, the average cost per transaction ranged from $0.61 to $4.70. When employees paid a fee, the average amount was about $3.18. Employees paid an average of $68.88 per year in fees.
Estimates of the resulting annual percentage rates (APR) range from 110% up to 334%. The CFPB used published data from a DTC firm to calculate that a $144 transaction for a one-week period, with $8 in fees (the combined average tip and fee amount) equates to a 290% APR.
It’s worth noting, too, that employees can become financially overextended if they simultaneously use multiple earned wage access services. Although this is unlikely within the employer-sponsored market, it’s possible that workers could use multiple DTC services or use them in combination with employer-sponsored services.
The regulatory landscape
Until recently, earned wage access has largely escaped regulatory scrutiny. For example, in 2020, the CFPB issued an advisory opinion indicating that programs that met certain requirements weren’t “credit products” covered by the Truth in Lending Act (TILA), which requires lenders to disclose information about all charges and fees.
The CFPB has since shifted gears. In July 2024, it issued a proposed rule that would treat many “earned wage access products” as consumer loans subject to the TILA.
Three months earlier, in April 2024, the U.S. House of Representatives Financial Services Committee advanced a bill that would set up federal guidelines for earned wage access companies. It would regulate both employer-sponsored and DTC earned wage access offerings, provide a fee-free option for workers, and ensure that earned wage access companies don’t use debt collectors. The bill hasn’t drawn bipartisan support, though, because it exempts all forms of earned wage access services from the TILA.
At the state level, nearly two dozen states have also turned their attention to earned wage access, enacting and proposing legislation to establish oversight for earned wage access providers (but not employers). Regulatory measures include registration or licensing requirements.
These states take different approaches to the question of whether earned wage access services constitute credit products under state law. For example, Nevada, Missouri, Wisconsin, and Kansas have passed laws stating that earned wage access services aren’t loans and that fees and tips aren’t interest or finance charges—ergo, they’re not subject to state consumer finance laws. On the other hand, California, Connecticut, Hawaii, and Maryland have chosen to subject earned wage access payments to lending laws that address interest rates and fee transparency.
Outside of the governmental arena, competition has driven some self-regulation of earned wage access providers. Leading provider Clair, for example, now offers its services to employers and employees at no charge.
Is earned wage access the best way to access money quickly?
Earned wage access isn’t the only option when employees need fast access to funds. Payday loans have been around since the 1990s, and cash advance apps have recently presented another route to quick cash.
Both payday loans and the apps generally offer users a loan until payday, when the employee must repay it with interest. One problem, though, is that a single pay cycle frequently isn’t enough time to pay off the loan, which leads to compounding and punitive fees.
The fees for payday loans are particularly high, even when paid off promptly. With an average fee of $15-$20 per $100 borrowed, a two-week loan can have an APR of more than 400%. Cash advance apps may charge fees for fast funding and monthly subscriptions, and request tips.
If a loan isn’t rolled over, payday lenders will withdraw payment from the user’s account on payday, which can create an overdraft situation and a domino effect of other fees. Some cash advance apps, by contrast, say they won’t withdraw in such circumstances, and the apps usually don’t pursue collections—they just shut down additional advances until repaid. Cash advance apps may offer free extensions, too.
Nonetheless, no-fee early wage access is probably the best bet—i.e., least costly—for most of your employees. That’s assuming that even cheaper alternatives, like loans from friends and family or lines of credit, aren’t available.
Gusto is here to help
If you decide to add earned wage access to your employee benefits and reap the productivity and other perks that go along with it, Gusto can help you get that set up.
