Why Early Wage Access Makes Your Business More Robust

Between rapidly changing technology, a global pandemic, economic uncertainty, and more, it’s a challenging time to run a healthy, profitable business. That’s why it’s more crucial than ever to ensure your business can weather the storm.

In order to build this resilience, more and more businesses are turning to a unique payment model where employees are paid or can request to receive their earned wages on a daily basis rather than waiting for their normally scheduled paycheck. This is referred to as early wage access (EWA) or on-demand pay.

How can an EWA model put your business in a better position to survive and thrive in the long term? In this article, we’ll discuss the major benefits of an EWA model, as well as key questions to ask when implementing one.

Less turnover

According to PYMNTS.com’s How We Will Pay study, demand for faster, EWA payments is picking up:

• 70 percent of respondents were interested in shorter pay cycles
• 24 percent were interested in being paid as quickly as they earned their money
• 53 percent said that if they were paid faster, they’d be better able to manage their cash flow and pay bills

A competitive advantage

Of course, employee turnover and retention don’t occur in a vacuum — other organizations in your industry are competing for the same people. All other factors being equal, workers are going to flock to the business that offers faster pay, rather than one that offers the same level of pay at a slower frequency.

Smoother payroll processing

We can all agree that paying employees on time and accurately is critical. But sometimes, the payroll process gets thrown off track by any number of issues — errors on timecards, exceptional circumstances requiring time off, scheduling issues and more are inevitable.

Rather than letting these challenges pile up over the course of an entire pay period, EWA obliges managers to address a problem the day it occurs in order to ensure employees are able to access their wages. In this way, EWA enables faster issue resolution, ensuring that problems are resolved early before they become more serious down the line.

What's more, when businesses start paying greater attention to payroll in this way, they reap the benefit of accurate labor reporting — on a daily basis.

More data

For businesses interested in data-driven decision-making, EWA offers a straightforward means of increasing the granularity of your data. Rather than wait every two weeks or a month, businesses can benefit from EWA's reliance on daily, accurate labor data with precise, up-to-date P&L statements, accurate reporting and forecasting, and overall more agile strategies.

Key questions to ask

If you’re interested in making the switch to an EWA model, you’ll want to plan ahead. Consider these questions before implementing a new payment model.

1. Can you stick with it?

The data shows that employees are enthusiastic about receiving their pay at a faster cadence. While this means you’ll delight your workers by implementing an EWA model, it also means it will be more difficult to transition back to your older payment model.

2. Have you measured the impact on cash flow?

Although EWA can make your business more robust in the long term, you’ll want to firmly understand it's financial impact. Since you’ll be paying wages more frequently, it’s imperative to keep a cash reserve to ensure you can pay wages upon request and overcome any unexpected challenges.

3. How important is flexibility and scalability?

Manually processing payroll under an EWA model by using a spreadsheet or other low-tech solutions can be seamless if you have only pay a few employees and rarely encounter exceptions. But as your business grows, so will the need for more granular control over payroll. Under these circumstances, managing EWA through your payroll software is the best option.

With the right software solution, time and labor data is seamlessly integrated to support both those employees paid by salary or by the hour. What's more, wages are calculated accordingly for those employees with a garnishment, child support, or other unique wage circumstances,

Software has the added benefit of customizing an EWA model that works for your organization. For instance, you may decide to offer a certain percentage of daily wages to employees. Employees could forgo collecting their wages on one day and then access their accumulated funds on another day. Crucially, conducting EWA through payroll software ensures that you stay in compliance with relevant tax regulations and minimize your risk.

None of these tasks are impossible using a low-tech approach if you're organization is small, but they will become challenging as you hire more employees. Often, it's better to start with a flexible and scalable payroll solution that supports EWA.

Determining whether an EWA model is right for you

We understand that it can be intimidating to make the switch to such a radically different payment model. While providing access to earned wages is a great way to make your business more resilient in the face of a challenging and unpredictable world, it’s not going to be a perfect fit for everyone. That’s why we conducted a recent webinar to discuss the ins and outs of EWA — access the webinar here and decide whether EWA could make your business more robust.