A Guide to Understanding Earned Wage Access

Q: How does earned wage access benefit the employer?

Employers can use earned wage access programs to help attract and retain employees. In addition, reducing financial stress on employees by giving them early access to their wages might also help make them more productive.

Q: Is earned wage access a loan?

There is ongoing debate about whether earned wage access is a loan. The Consumer Financial Protection Bureau (CFPB) has provided some limited guidance on the issue. In a November 2020 opinion, the CFPB said that earned wage access was not a loan as long as an “employee makes no payment, voluntary or otherwise, to access EWA funds.” The agency will likely weigh in with further guidance in the future.

Q: How much does earned wage access cost?

There may be fees associated with an earned wage access program. For example, employees might have to pay a fee of $1 to $5 per transaction. But not all early wage access programs charge fees. Check with your employer.

Austin KilhamUpdated April 7, 2023

Share this article:

Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Earned wage access allows employees to access their money as they earn it. For a number of employees, especially those paid a lower wage or hourly workers, earned wage access may help alleviate financial stress. With earned wage access, employees don’t have to wait until their next payday to access funds. Instead, money they’ve earned could be available on demand as expenses arise. Read on to learn what is earned wage access and the benefits it provides.

What Is Earned Wage Access?

Earned wage access is a service provided by employers that allows employees to access their wages when they need them, rather than waiting until payday. Earned wage access might also be referred to as early wage access, accrued wage access, or on-demand pay. The way an earned wage program generally works is that an employer contracts with a third-party payroll provider for earned wage access services. Employees can sign up and choose their wage disbursement options, and then request early wages when they need them. The amount they receive is deducted from their next paycheck. Employees who request early access to their wages usually have funds deposited directly into their bank account. Or the funds may be distributed onto a prepaid debit card or payroll card or a cash app on your phone.

Benefits of Earned Wage Access for Employees and Employers

Earned wage access can be beneficial. When employees don’t have to wait until payday for their funds, they can use their wages right away to pay for expenses such as buying groceries or paying down debt like bills. For employees, this type of setup may be a substantial benefit, since it can help alleviate financial stress, especially for those living paycheck to paycheck. Employers may be able to use earned wage access as a tool for attracting and retaining employees. Early wage access might even make employees more productive, since it reduces their financial stress.

Additional Cost and Fees with Earned Wage Access

However, there are some potential drawbacks to early wage access. Employees may be charged fees for using it. For instance, they might have to pay a transaction or transfer fee of $1 to $5 each time they get early access to their wages. It’s also possible that employees might have to pay more for requesting instant access to their money than for getting next-day access. Not all earned wage access programs charge fees. Find out if yours does, and what the fees are, before you use early wage access. Recommended: How Can You Get a Direct-Deposit Personal Loan?

Earned Wage Access vs Payday Loans

A payday loan is another method of getting money quickly. With a payday loan, a lender gives you a portion of your next paycheck, usually around $500, that you repay on your next payday. However, these loans can be risky. Payday lenders often charge borrowers exorbitantly high fees, which can run from $10 to $30 for every $100 they borrow. For example, if you take out a $100 payday loan that has a $15 fee, it’s the equivalent of paying nearly 400% APR. In addition, the quick repayment term can be difficult for many borrowers to meet. Some payday lenders allow borrowers to rollover the loan amount, but charge them an additional fee. Borrowers may end up trapped in a cycle of debt that keeps growing. Payday loans are often considered predatory lending and they are prohibited in some states. Recommended: Getting Out of Paying Payday Loans: Things to Know

Alternative to Earned Wage Access

If your employer doesn’t offer earned wage access and you need money fast to pay bills or cover unexpected expenses, you might want to consider taking out a small personal loan. Personal loans are a type of installment loan offered by banks, credit unions, and online lenders. Once approved for a personal loan, you receive a lump sum that you repay monthly with interest over time. Personal loans are flexible and can be used for almost any purpose. The average interest rate for personal loans is 11.21%, according to the St. Louis Federal Reserve, making these loans a far less expensive option than payday loans. Borrowers’ interest rates are determined in large part by their credit score. Generally, the higher your score, the lower the interest rate you may be able to qualify for. Be sure to explore the current top personal loans with different lenders to find the best rates and terms for you. Recommended: 10 Possible Benefits of Obtaining Personal Loans

The Takeaway

Earned wage access can provide employees with early access to their wages when they need money quickly, such as paying an unexpected expense. However, there may be fees involved with earned wage access, so be sure to check with your employer to find out. If your company doesn’t offer early wage access, or you decide it isn’t the right method for you, you may want to consider taking out a personal loan instead. Lantern can help you find the best option for your needs. In our online marketplace, you’ll get loan offers from multiple lenders at once, so you can easily and quickly compare rates and terms.

Frequently Asked Questions

How does earned wage access benefit the employer?

Is earned wage access a loan?

How much does earned wage access cost?

Photo credit: iStock/Viorika

LCPL0323003

About the Author

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.

Share this article: