What Is Earned Wage Access (EWA)?

Earned wage access (EWA) is a benefit offered by some employers that allows employees to access some of their paycheck early. This can help you with short-term cash flow needs, but it has some drawbacks as well. If your employer offers EWA, you should understand how it works and the pros and cons before you decide to use it.

Earned Wage Access Explained

EWA is a company benefit that allows you to access some of the wages you’ve earned before payday. For example if you’ve earned two weeks pay and it’s Monday, but your payday isn’t until Friday, you can access a portion or all of your net earned pay early. It’s done through an app from a company that your employer has partnered with to offer the benefit.

It’s often free if you can wait a few days for the funds, or you may pay a small fee to get immediate access to your cash. The amount you access will be deducted from your next paycheck.

How to Use EWA

1. Follow your employer’s procedures to sign up for your EWA benefit.
2. Download the app from the company that your employer has partnered with. You’ll generally need to link your bank account or debit card.
3. The app will be integrated with your employer’s payroll system, so on the app you should be able to see your available balance.
4. Choose the amount you want to access. You don’t have to access the entire available balance. Be sure to check the fee and make sure that it fits into your budget.
5. Choose how to receive your funds, and if you want expedited or immediate access, which will likely involve a small fee.
6. The money will be transferred to your selected method of receipt, whether it’s your bank account, debit card, or other allowed method.
7. The amount accessed will be deducted from your next paycheck.

How Do You Qualify for EWA?

Generally, you qualify for EWA if your employer offers it as a benefit. No credit checks or application are involved. You do, however, usually need to have a bank account or debit card where the funds can be transferred to. You may also be required to have direct deposit of your paychecks.

You must also have earned wages to be able to access funds. You can’t access wages that have not yet been earned.

How Much Money Can You Get With EWA?

Your employer’s EWA provider may have limits on how much money you can access, and your employer may also have rules. Often, the amount is limited to 50% of your earned wages, and a dollar amount daily limit may also apply. Some providers, however, may allow you to access all of your earned wages. Check with your employer to see what limits apply.

According to data collected by the Consumer Financial Protection Bureau (CFPB), average transaction sizes range from $35 to $200, with the average employee accessing around $3,000 per year.

Does EWA Affect Your Credit?

EWA advances are generally not considered loans, with no credit checks or credit reporting involved. You are simply accessing your own money early. No interest is charged and you don’t make payments. You’ll just get a smaller paycheck on payday.

EWA Pros and Cons

While EWA has many advantages, it’s important to weigh both the pros and cons.

Pros of EWA

• You get early access to earned wages when you need cash for short-term expenses.
• You can often get funds the same day when the need arises.
• Usually, no credit check or credit reporting is involved.
• No collateral is required.
• It bridges the gap between earning wages and receiving your paycheck to help you with short-term cash flow needs.
• It can be less expensive than alternatives like high interest credit cards or personal loans.

Cons of EWA

• Fees may apply, which can add up if you access cash frequently.
• You can often only access a portion of your earned wages, which may not be enough to cover your expenses.
• You’ll get less money on payday, so you’ll need to budget carefully.

Alternatives to EWA

If your employer does not offer EWA or EWA doesn’t meet your specific needs, you can consider some alternatives when you need cash.

1. Personal Loans: A personal loan usually comes in the form of a lump sum payment to you, which you have to repay in fixed monthly payments at a fixed interest rate. Personal loans fall into two categories: secured and unsecured. Secured loans require collateral, which is an asset such as a car or a home that the lender can seize if you don’t repay the loan. Unsecured loans require no collateral and are made solely on the lender’s assessment of your creditworthiness. If you don’t repay the loan, the lender may sue you for repayment. Personal loans are a good alternative if you need money for a larger expense like a car repair.
2. Low or 0% interest credit cards: If you have excellent credit, you may qualify for credit cards that have low or 0% introductory rates. This can be good for consolidating credit card debt at a lower cost, or for purchases that you plan to pay off in a relatively short time frame. If the low rates are introductory only, be sure to pay your balance off before those rates expire to avoid high finance charges.
3. Home equity line of credit (HELOC): If you own a home and have equity available, you may be able to get a HELOC. This allows you to use only what funds you need when you need them and pay interest only on the funds that you use. HELOCs are great if you’re looking for funds for home improvement or another large expense.
4. 401K loans: 401K loans allow you to borrow against your retirement plan and repay it through your paycheck. You pay interest, but you’re paying the interest to yourself. You can generally borrow up to 50% of your vested balance, subject to IRS rules. Be sure to do your homework to understand the rules and tax consequences of these loans.
5. Payment plans: If you have expenses such as medical bills or legal fees, providers will often let you pay in installments. You just have to contact them to see what arrangements you can make.
6. Cash advance apps: If you need short-term money quickly, cash advance apps let you get part of your paycheck early, similar to an EWA benefit. When you get paid, the money will generally be paid back directly from your bank account. These advances usually don’t involve interest, but certain fees may apply.
7. Buy now pay later: These plans allow you to make a purchase by making payments over a period of time.

In Closing

EWAs can be very useful and have become very popular, offered by more and more employers. They can help you with short-term cash flow needs, bridging the gap between working to earn your wages and getting paid. Just be sure to weigh the pros and cons and budget carefully so that you’re prepared to get less money on pay day.