Overcoming The Logistical Headache Of Earned Wage Access

If it weren’t for the decades of biweekly or monthly payroll cycles ingrained in corporate culture, the concept of connecting employees to their earned wages on-demand might seem like an easy decision.

It’s a logical payroll innovation that aims to support employees’ financial well-being by connecting them to earned wages before that periodic payday. And as the gig economy introduces more professionals onto the labor market that operate beyond the traditional confines of a full-time salaried employer, they’re looking for a payroll experience that can similarly be flexible enough for their untraditional needs.

Yet as Jonathan David, founder and CEO of U.K.-based FlexEarn, recently told PYMNTS, it’s not easy for employers to migrate their back-office payroll workflows, which have operated on a scheduled basis for years, to support on-demand earned wage access.

Speaking with PYMNTS, David discussed what the growing number of early earned wage access FinTechs must consider when looking for adoption. Plus, he considered what’s next for the space as a variety of forces determine which platforms ultimately win market share.

The Logistics Of EWA

Earned wage access, or EWA, can be an effective way for employers to support employees’ needs and financial well-being. In today’s difficult jobs market, that’s a valuable proposition that can help firms keep workers satisfied.

“Workers are looking for flexibility in everything they do, including employment,” said David. “We are increasingly seeing workers who perhaps do a few hours per week for multiple companies. With unemployment so low, these companies have to compete with each other to attract and retain their people. Offering payroll perks, such as earned wage access, can give them a distinct advantage.”

Yet the logistics of integrating EWA capabilities can be a significant deterrent to adoption.

According to David, setup and administrative burdens are among the tallest hurdles that employers face when seeking to extend this benefit to their workforce. Certainly, it’s one thing to provide wages to professionals who have already earned them. It’s another ballgame to ensure back-office payroll operations can account for those calculations to ensure payroll remains accurate moving forward.

Industry collaborations with payroll and other FinTech platforms are a key part of FlexEarn’s growth strategy, David added. Most recently, the firm announced a tie-up with Sage, which will automate most of the calculations as part of the administrative tasks while the platform is also able to integrate with both payroll as well as time and attendance solutions to fill in data gaps.

An Evolving Market

There are plenty of other features that both employers and their talent seek when deploying an earned wage access solution. In addition to administrative hurdles, David pointed to costs and employee well-being as critical factors that can hamper adoption of these solutions.

“Earned wage access is a low-margin business,” he noted. “There will always be a temptation for providers to offer add-ons and other products so they can make more money.”

FlexEarn’s strategy is to charge the employee a low, flat fee to access their earned wages and not charge their employer. It’s not the only strategy to delivering this solution to the market, of course, and as more solutions populate the FinTech space, it’s the employers and their workers that will ultimately decide which solutions succeed and which fall by the wayside.

But there is another factor that EWA technology firms must consider: regulation.

“EWA providers will inevitably fall under increasing scrutiny,” said David. “The product isn’t currently regulated in the U.K., but I think it’s only a matter of time before it is.”

As the EWA ecosystem explores the combination of features that will be most successful in the market, David also said that players must anticipate this evolution from a regulatory standpoint as well. A focus in information security, for instance, before it is mandated by regulators can help FinTechs maintain a competitive advantage and develop a positive reputation in an increasingly competitive and crowded space.