Many of the nation’s largest employers are giving their employees access to wages earned before payday and have found it to be a sought-after employment benefit. For some companies, this option is more popular than participating in a 401(k) plan.
This development is not surprising, as affordability issues that have spread across the country in recent years have strained many Americans’ budgets. A new way to earn wage income early means workers don’t have to take advantage of predatory payday loans, but consumer critics worry it remains a form of lending that is largely unregulated. Consumer groups argue that wage advances can come with fees and, in some cases, similar to payday loans, can send America’s most vulnerable workers into an unhealthy debt spiral.
Here’s a primer on its benefits, its evolution, and both sides of the debate.
Major players in this field
Access to earned wages, also known as on-demand pay and same-day pay, has increased significantly in recent years with companies like Earnin offering direct-to-consumer services. Other companies in this space, such as DailyPay, Payactiv, and Stream, offer their services through employers. According to the International Employee Benefit Plans Foundation’s 2024 report, wage access is provided by 2.5% of corporate employers, including some of the largest companies such as Walmart, Amazon, Target, McDonald’s, Uber, Lyft, Taco Bell, and Arby’s. Programs vary by employer and earned wage access provider.
Why is usage increasing?
The Consumer Financial Protection Bureau estimates that the number of transactions processed by these providers will increase by more than 90% from 2021 to 2022, giving more than 7 million workers access to approximately $22 billion in 2022. This argument continues to percolate as many American workers struggle to make ends meet. A recent Mercer report found that the most unmet need for employees remains covering monthly expenses. According to widely cited 2024 data from the Federal Reserve, 37% of adults say they would not be able to cover a $400 emergency expense with cash or cash equivalents.
EWA providers point out the need. According to EWA provider Payactiv, employees lose an average of $300 each month in avoidable fees, penalties, and high-interest credits to cover the difference in pay.
Difference between prepaid and prepaid
The industry argues that any comparisons to the payday lending industry are misplaced and that access to already earned wages is clear.
“Responsible EWA is an important employer benefit for employees and potential employees who have access to wages on their terms and schedule,” said Phil Goldfeder, chief executive of the American Fintech Council, an industry group. “EWAs serve as a very important alternative to expensive predatory and payday loans, making them an important tool for consumers to avoid debt,” he said.
The industry says classifying EWAs as loans could have the negative effect of pushing consumers back to higher-cost, higher-risk alternatives such as payday loans and pawnshops by imposing unnecessary restrictions such as mandatory fees, interest rates, and credit reporting requirements.
What Earned Wage Access Providers Say About Employee and Employer Response
EWA providers say the service improves employee outcomes and connects employees to the company. Stream says 90% of members feel more positive about their employer and 76% feel more in control of their financial goals. The company also cited a 25% reduction in absenteeism and said 21% more shifts were filled.
DailyPay CEO Nelson Chai recently told CNBC that more than 6 million employees at businesses across the U.S. are eligible to use the company’s service, and about 34% of them have opted in.
Employers are also benefiting, Chai said. “We’ve seen about a 30% reduction in attrition rates in the companies we work with,” he told CNBC. He added that Daily Pay platform employees are also over-indexing when taking additional shifts “as they see their balances grow.”
DailyPay data also shows that when benefits are available, front-line worker turnover rates drop from the typical 40% to 25%.
Why consumer advocates are concerned
Consumer advocacy groups argue that EWAs should be regulated as credit products. They argue that consumers often pay high fees to access their funds early, and that EWA providers and employers do not protect consumers from depositing the same funds with multiple lenders. Without proper regulation, advocates say, consumers can easily fall into debt.
To be sure, consumer advocacy groups have no problem with employees having free access to their own money. “We are not opposed to completely free earned wage advances and believe that employers and payroll companies could easily provide the service for free, as some businesses do,” Lauren Saunders, associate director and director of federal advocacy at the National Consumer Law Center, said in an email. She added a warning: “The ease with which next week’s paycheck is spent on this week’s expenses can make it difficult for people to manage their finances and pay large monthly bills such as rent.”
However, they say the product’s design and use by employees is not typical, with many employees not using the free option and instead paying for quick access to funds. Using data from 2021 and 2022, the CFPB estimated that employers surveyed subsidized less than 5% of total fees. The CFPB also found that approximately 90% of workers pay at least one wage product-related fee. The average cost per transaction ranged from $0.61 to $4.70. According to the CFPB, workers paid an average of $68.88 a year in fees.
“They’re designing the product in a way that incentivizes smaller loans to earn more fees,” said Yasmin Farahi, deputy national policy director and senior policy advisor at the Center for Responsible Lending, a nonprofit focused on fair and equitable lending practices.
What are the free options for salary advances
There may also be other options for accessing these services for free, depending on the employee’s existing relationship with the financial services industry. Consumers can receive their paychecks days early through some banks and credit unions. Companies like Capital One, Regions, and Wells Fargo are offering direct deposit customers free access up to two days earlier than traditional paydays.
However, many employees prefer the flexibility of accessing earned wages because they can access funds faster and on demand, even if there are fees involved. In fact, the market for employer-affiliated wage products continues to grow rapidly.
According to a spokesperson, all DailyPay users have two ways to access their paychecks for free and an immediate option for a small flat fee. The company also partners with some employers who fully or partially subsidize the cost, making the experience completely free for their employees, the spokesperson said. According to the company’s data (as of December), users have made 33 million fee-free transfers.
For example, employees who sign up for DailyPay through Target can access their earned paycheck at any time and have it transferred to their bank account, paycard, or debit card within one business day for free. Instant access to your funds costs $2.99 per transfer. A Payactiv spokesperson said the employer program includes zero-cost payment options by default.
Legislative action could be next
The FinTech Council of America is working with both parties in Congress to reintroduce the EWA bill, which replaces a previous bill introduced last year. The bill would codify best practices for providers, define EWAs as not loans, ensure strong fee disclosure, and more.
In January, the bill was circulated for commentary in the House Financial Services Committee. Introduced by Rep. Brian Still, Republican of Wisconsin, and Rep. Ritchie Torres, Democrat of New York, it would prevent EWAs from being classified as credit products and preempt state laws to the contrary.
Meanwhile, about a dozen states have enacted laws regulating access to earned wages to varying degrees, and several others are considering legislation, according to the U.S. FinTech Council. A legal battle is also underway.
Last year, for example, the New York State Attorney General sued DailyPay, alleging that the company engaged in illegal and deceptive lending practices by offering payday advances services that functioned as payday loans disguised as EWAs. DailyPay filed a motion to dismiss in December, and the New York State Attorney General’s response is expected in early March. There is also a pending lawsuit by consumer lawyers targeting EWA’s business practices.
