What are the different types of earned wage access?

There aren’t too many things better than getting that nice, crisp paycheque at the end of the week. You’ve worked hard and there, right in cold print (or if via direct deposit, then digital print) is the fruit of your labor. Nice.

It can, however, be tough for many Canadians to get from payday to payday. Making ends meet has only become harder as the COVID-19 pandemic raged on and many Canadians lost their jobs, contributing to the 8.1% unemployment statistic of March 2021. The Canadian government has worked to soften the blow caused by the pandemic but the unfortunate reality remains: Canadians have been suffering from record debt, many of whom are living from paycheque to paycheque. Consequently, payday loans have become more tempting than ever.

This is where Earned Wage Access comes in. It’s a service that allows you to access a portion of your paycheque before payday. Interesting, right? Let’s take a look at what exactly EWA is, how it works, and some things to consider before you use the service.

What is Earned Wage Access (EWA)?

Earned Wage Access is any program or service that allows consumers to access a portion of their pay before payday. There is generally a small fee charged by the lender for the service. EWA programs are quite popular south of the border in the US, but Canadian companies have not yet jumped on the bandwagon, leaving employees to seek such services on their own.

One of the main financial regulators in the United States, the Consumer Financial Protection Bureau (CFPB), issued an advisory opinion noting that EWA products are not considered credit and Canadian regulators have found the same. This is because EWA products are on-demand pay for work already completed, not borrowing money to be repaid later.

Let’s take an example. If you work a total of 20 hours a week and make $20 an hour, you can expect to get a paycheque for $400 (disregarding taxes and other items for ease). Now, let’s say it’s the 10th of the month and you’ve already worked about 30 hours but you won’t get paid until the 15th. Perhaps some bills are due or you need to get your car fixed. With an EWA product, you can be paid for some of the 30 hours you’ve already worked. Let’s say you take out $100 through EWA. When your paycheque is deposited, you’ll automatically be debited the amount for which you were already paid and a small fee. Typical fees run between $2 and $5. Some employers may choose to pick up the fee on behalf of their employees.

Cool! Do I just get cash?

Kind of. These programs can take many different forms and can be delivered to consumers in many different ways. All legitimate EWA programs are offered through your employer as a benefit, similar to your health insurance or retirement plan. Some large employers may choose to finance this themselves by offering earned wage access directly to employees. Most employers, however, work with an EWA provider. Some of the most popular providers in the US include ZayZoon, Payactiv, and DailyPay.

These companies offer a variety of ways to access wages. The most common way to access wages is the use of a debit card, linked to an account at one of the companies. You request the early withdrawal through an accompanying app and money is deposited to your account. You can then use it just like you would any other card, whether you’re shopping online or in-person.

Some companies also offer direct deposit into your bank account or hold the money in a digital wallet.

"Earned Wage Access is any program or service that allows consumers to access a portion of their pay before payday."

What should I use this for?

This is really more of a personal choice. Since EWA relies on money you’ve already earned in your paycheque, you don’t have to worry about repaying the amount you withdraw early. However, make sure you look closely at where withdrawing money now will place you down the road. There are plenty of good reasons to use EWA such as fixing a car, buying timely necessities, or paying bills that are due before your payday. Heck, even taking out a bit of your paycheque to buy those concert tickets that might sell out isn’t a bad idea. Just be sure that you have a plan for how you’ll handle your paycheque minus the amount you’ve withdrawn.

What do I need to watch out for?

There are a few things to watch out for if you’re using or considering using EWA. Some of them have to do with the model the EWA provider uses.

1. How much is the fee?

You want to ensure that you are 100% clear on how much of your paycheque you’re going to be losing on payday. A few dollars here and there likely won’t matter but it’s still important to go in with all the information. Typical fees range between $2 and $5 and some employers may pick up all or some of the fees associated.

2. How much can you take?

Most companies will limit the amount you can withdraw from your paycheque, usually around $200. Additionally, you can only use EWA once per pay period and some companies may limit the amount of times you can use the system in a row. It’s also worth reiterating here that this withdrawal is subject to the amount of money you’ve already earned. So, if during the present pay period you’ve only worked enough hours to earn $50, you won’t be able to take out any more than that.

3. Think of your budget first

While EWA tends to be better than products like payday loans, consumers can still get into a cycle of debt from which it can be difficult to escape. If you’re borrowing more money than you’ve budgeted for from each paycheque, and having to borrow the following pay period to cover additional costs, it’s a good idea to take a hard look at your cash flow and reassess your income and expenses. Remember, EWA is neither free money nor a loan; it’s cash coming out of your own paycheque. So, if you take money out early, you’ll need to budget accordingly.

My employer doesn’t offer EWA — can I still use it?

You might be able to take advantage of EWA if your employer doesn’t offer it — but up to a certain extent. Many EWA companies work with employers directly for various reasons. First, because it's much easier to go to the source of the folks paying the wage. Working with employers means the EWA providers can guarantee what pay you have coming in and when.

If you decide to use EWA that isn’t available through your employer, you may be restricted as to how much you can borrow and when you can do so. For example, Payactiv only offers non-employer sponsored plans to individuals two days before their payday.

Earned Wage Access can be a powerful tool for consumers who sometimes have trouble making ends meet. If your paycheques and bill cycles don’t exactly match up — maybe you’re an hourly worker with fluctuating pay — EWA programs may make your life a whole lot easier. EWA plans are also much, much better options than payday loans. If you decide to use an EWA plan, ensure you understand the fee structure and how the provider will deliver your money. Additionally, ensure that EWA use is part of a broader budget strategy and use it as a tool to achieve your financial goals.