Earned wage access is only one piece of the financial wellbeing puzzle

Earned wage access (EWA) has emerged as a popular benefit for businesses. According to our recent study of more than 3,000 American workers, 10 percent of employers offer earned wage access benefits, which provide employees access to already-earned wages outside of pay cycles.

There are certainly upsides to offering employees access to their earned wages. If a minor financial emergency comes up and you don’t have enough money in your checking account, you can access money you’ve technically already earned to pay for it.

EWA solutions are well-suited for handling these smaller, unexpected expenses – $100-150 is the average amount – which often pop up at the end of the month or shortly before payday. EWA is a valuable benefit that assists team members and helps them avoid taking on expensive debt incurring expensive overdraft fees and depleting savings. It can even out cash flow variability and provide peace of mind for today.

That’s a very specific use case – and an important one. But, where it’s inadequate is with larger expenses. If the refrigerator dies, a loved one needs assistance with hospital bills, or you need two months’ rent as a deposit for a new apartment, accessing your earned wages alone won’t be enough. EWA doesn’t help someone in these situations.

For businesses, the assumption may be that offering EWA is a blanket solution for the complex problem of financial stress. But it also doesn’t help employees who are already struggling with high-cost debt that might actually be preventing them from achieving shorter-term financial stability.

In a recent Financial Health network survey, 41 percent of respondents said they had reduced spending on basic needs over the past 12 months because they couldn’t meet their current debt obligations. In the last year, half of Americans delayed or altogether skipped healthcare because of cost.

Solutions such as personal loans linked to payroll – which provide employees affordable access to credit based on factors aside from just credit score – are ideal for when workers need larger amounts of money or are stuck in a cycle of high-cost debt. They can serve as a tidy complement to EWA because they help workers pay down expensive debt so they can build savings and improve credit scores, leading to better access to credit in the future. This allows EWA to be used as it was intended, and not abused, as it often is today: nearly 60 percent of workers that have EWA use it as often as they are able to and spend the money on regular bills or payments.

The same Financial Health Network study found that more than 60 percent of workers would be more likely to stay at a job that offered debt-related benefits – but that only one in five workers have access to one of the 13 debt-related benefits the organization polled on. This shows that some employers are moving in the right direction, but not enough. The power has shifted from employer to employee, who can now demand more, whether it’s more pay, more flexibility, or better benefits. There was a softening in tone pre-COVID – a move toward empathy – but since then, the power dynamic has shifted, with workers increasingly demanding changes to work environments and benefits.

The Great Resignation was the payoff for that freedom and, for the first time in our lifetimes, it led to a worker-dominated employment environment. While EWA may be one part of the answer, organizations owe it to their employees to find the right mix of benefits that lead to financial wellness.

Financial wellness is inextricably linked to engagement and satisfaction at work. It’s the responsibility of employers to give employees the tools to be financially stable. It’s what workers want. While benefits focused on financial wellbeing are still not ubiquitous,  employees who do have access rank them as some of the most important benefits. On average, over 50 percent of employees with access to financial wellbeing benefits rank them as highly important vs. 30 to 40 percent for other types of benefits.

More than 40 percent of employees have an interest in salary-linked, low-cost employee loans and more than 60 percent are interested in emergency savings accounts. The interest in those solutions demonstrates that workers are interested in putting in the work to get out of debt and save. They aren’t just looking for well-marketed solutions that, in the end, don’t alleviate the debt burden from which they are suffering. Some employers have figured that out but for those that haven’t, the day of reckoning is quickly coming up.

Dan Macklin is CEO at Salary Finance.