Earned wage access (EWA) is catching on across various industries. Many different types of employers are using it to help attract and retain employees, but is it a viable option for construction companies?

The need is certainly there. The construction industry continues to struggle with a labor shortage, and a perk like EWA may help attract quality job candidates and motivate current employees to stick around. However, be sure you know all the details before offering it.

Nuts and bolts

EWA goes by several other names — including early pay, same-day pay, instant pay and daily pay. Whatever its moniker, the perk allows employees to access part of or all their earned but unpaid wages before their next payday. Participants can usually receive the funds within one to three business days, free of charge, or sooner if they pay a fee. Funds can be disbursed as a direct deposit to the worker’s bank account, a prepaid card or a digital wallet.

Although employees may engage an EWA provider directly, employer-sponsored programs are becoming more common. Under this model, an employer usually contracts with a third-party provider to fund early payroll disbursements based on the employer’s time and attendance records. Because the provider is responsible for funding, EWA doesn’t affect the employer’s cash flow and requires no changes to its payroll systems. The provider is repaid through deductions from participants’ paychecks every payday. Some also charge employers fees for setup, maintenance or transactions.

The popularity of EWA has been growing for a while. A 2022 survey by human capital management solutions provider ADP found that four out of five employers already offered some form of EWA. What’s more, according to the Consumer Financial Protection Bureau (CFPB):

• The number of EWA transactions processed jumped by more than 90% from 2021 to 2022, and
• More than 7 million workers accessed approximately $22 billion in 2022.

The CFPB attributes the high demand to the fact that about 75% of workers are paid bimonthly or monthly. The delay between payments can create a cash crunch for these employees, who may turn to payday loans, credit cards, cash advances, bank overdrafts or other costly options for relief.

Pros and cons

The benefits of EWA for participants are fairly obvious. They can tap their wages before payday without going through a credit check or satisfying an income requirement. Even with fees for instant access, EWA is typically cheaper than a payday loan. And participants don’t have to worry about dealing with collection agencies, accumulating interest at punishing rates or lowering their credit scores.

The advantages for employers might not be as apparent — but they’re significant. For starters, personal financial troubles are a leading cause of stress for workers. These worries often undermine their performance, causing distraction and lower productivity. Money troubles may even drive employees to look for new jobs. In other words, workers’ financial concerns are bad for your construction business. EWA could help alleviate some of the stress.

Additionally, many workers now expect employers to offer EWA in today’s on-demand world. According to the aforementioned ADP survey, about 60% of millennial respondents said they’d prioritize a job offer that includes EWA, and 75% said the availability of it would influence their acceptance of an offer. So, offering EWA could give your construction company a competitive hiring edge with younger job candidates.

All that said, there are potential cons to EWA that you must consider before rolling out a program. First, participants may hold unrealistic expectations of EWA and grow disgruntled if it doesn’t solve their financial woes. To guard against this, you’ve got to design your program carefully and clearly communicate all its features and limitations. In other words, implementing and administering EWA will consume time and resources.

Second, if you partner with a third-party EWA provider and participants encounter problems, your construction business will take the blame. It’s critical to carefully vet potential providers and choose one you can trust and work with comfortably. Also, as mentioned, some providers charge employers various fees for their services. Before signing a deal, identify those fees and project their impact on your company’s cash flow.

Potential winner

EWA may help improve recruitment, employee retention, performance and productivity for your construction business. However, this perk may not suit every company.

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