The Downsides Of Earned Wage Access (Daily Pay)

One of my favorite stories to tell about my childhood is when my parents broke my pinky finger! Pretty dramatic, I know, but as a 12-year-old boy it felt like the end of the world.
I injured my finger playing football at school, and when I got home, my mom thought it was just a jam. Naturally, she decided to pull on it, thinking it would help. It didn’t. So, the next logical thing was for my dad to do the same. You guessed it, still didn’t work. The next day, an X-ray revealed my pinky was fully broken. It’s still crooked to this day!

I share this story to illustrate that good intentions don't always lead to good outcomes. My parents genuinely thought they were helping, not realizing my finger was actually broken. Many parents can relate to the feeling of trying to help, only to find out it wasn’t the right solution.

Similarly, with Earned Wage Access, good intentions don’t always lead to the desired results.

An area in which employers may think they are helping their team, but it is possible that they are hurting. Employers often implement daily pay systems with the best intentions, aiming to support their team by providing early access to earned wages. 

This feature allows employees to receive a portion of their paycheck daily rather than waiting for the standard payday. For instance, instead of getting $700 every Friday, an employee could opt for $100 each day.

Earned Wage Access, aka daily pay, has gained significant popularity among employers in recent years, as it seems to offer employees greater financial flexibility by giving them real-time access to their earnings. While great in theory, there are some downsides of daily pay that you may want to take into consideration before rolling out a similar program. 

Potential Cons of Offering Earned Wage Access 

The particulars of an EWA program matter. While EWA can provide significant advantages, it’s also important to weigh these against potential drawbacks. 

1. Daily Pay Exaggerates Poor Money Management 

Let’s get one thing straight: daily pay isn’t a magic bullet for financial well-being. It's like putting a band-aid on a wound that really needs stitches—you think you’re solving the problem, but you’re not addressing what’s really wrong. 

A lot of daily pay providers look appealing to employers who offer low-wage jobs because they pitch themselves as the heroes giving employees control over their finances. But getting your money more often doesn’t actually fix financial problems. Sure, it’s nice to have cash on hand to pay bills, but if you’re always spending more than you make and can’t stick to a budget, getting your money sooner just means you’ll spend it sooner too.

If your employees struggle with managing their finances, giving them access to their wages every day won’t solve that problem. In fact, it could make it worse. Instead of slapping on the daily pay band-aid, employers can offer financial wellness training to really get to the heart of the issue. Without a strong budget, employees might spend their money as soon as they get it, leaving them with little to cover expenses when they really need it.

As an employer, you could end up enabling poor financial habits rather than helping your team build better ones.

2. Earned Wage Access Can Be Expensive For Employees

Many daily pay providers proudly advertise “No Fees,” but be careful of the fine print! While it may be free to sign up, it’s not free to use. Many providers charge a fixed fee every time an employee accesses their funds, sometimes offering up to five transfers a week. This may seem like a benefit, but if you do the math, these fees can quickly add up. 

For example, a $3 fee per transfer, multiplied by five transfers a week, results in $15 a week. Over a year, that’s $780 just to access their own money.

These costs can be equivalent to those of payday lenders. While many companies wouldn’t advocate for a 30% interest rate, that’s effectively what’s happening with daily pay services. 

Weighing the Pros and Cons

As an employer, you’re responsible for weighing the pros and cons of any program you implement. Before making a decision, think about whether daily pay truly aligns with your company’s values and goals. If you’re interested in exploring the positives of daily pay, check out the pros of Earned Wage Access to help you decide which option is right for your business. 

But remember, the right choice for your business is the one that genuinely supports both your bottom line and your employee's well-being.