[US] Earned wage access and compliance considerations

Earned Wage Access (EWA) allows employers to let employees access their earned wages before their next payday. EWA can be beneficial for workers struggling to meet expenses but many organisations have yet to get on board. A new survey from ADP has some insight into the reasons why.

The recent ADP survey reveals that - among companies hesitant to adopt an EWA solution for their employees - the potential compliance impact of EWA is cited as one of the reasons organisations have yet to take advantage of this option.

In a recent webcast, Pete Isberg - ADP Vice President, Government Affairs - said that compliance concerns are rooted in the way wages have been addressed historically.

"No state has enacted government regulation for EWA yet to date, and it's not at all unusual for the law to follow practice by 10 years or more," Mr Isberg said.

"Many of our current policies that govern pay were enacted during the Great Depression in response to abusive practices such as paying employees in script, which could only be redeemed at a company store, so many laws still reflect that era. In fact, paying workers electronically, which we take for granted now, faced a decade of legislation during the 1970s."

This could potentially leave employers operating in a legislative vacuum meaning they may tend to proceed with caution.

To increase confidence from a compliance perspective, ADP suggests considering the following points when adopting EWA:

Look to CFPB and Regulation Z for federal guidance

Since EWA involves payment of earned wages in advance of a scheduled payroll date, some regulators have raised the question of whether EWA should be treated as a form of lending.

The Consumer Financial Protection Bureau ("CFPB") recently issued advisory guidance addressing whether the Truth in Lending Act ("TILA") and the related Regulation Z applies to EWA programmes. The CFPB reportedly concluded that certain characteristics can distinguish EWA programmes from being considered credit.

Different EWA programmes vary in key aspects of their process. But some characteristics, as explained in the CFPB's advisory opinion, can make EWA sufficiently distinct to not be considered a form of credit:

• The EWA provider contracts with the employer to offer EWA services to workers
• The amounts available to access are not more than what the worker has already earned
• No reporting of EWA transactions to credit bureaus
• No issuance of post-dated cheques by the worker to the EWA provider
• The EWA provider recovers the withdrawn earned wages through an employer-facilitated payroll deduction or similar recovery mechanism from the employee's next paycheque.

The CFPB emphasises that EWA programmes that vary from these criteria are not necessarily forms of lending. The CFPB guidance is only determinative for those programmes that fit the prescribed characteristics.

State EWA legislation is possible, however, none has been enacted to date

As uncertainty remains, ADP says it is important to note that no state has adopted legislation or formal guidance. A few states have proposed legislation to address EWA programmes. Most would require registration of any service providers and would establish in state law that qualifying EWA programmes do not constitute lending.

Ankit Jhunjhunwala - Director of Product Marketing, Employee Financial Solutions ADP, Inc. - says data tells an important story about the value of moving forward while states explore the topic.

"Today, 76 per cent of workers from all age groups, education and income levels, say it's important for their employers to offer EWA," Mr Jhunjhunwala said.

Citing ADP survey results, he said, "Millennials prioritise offers from employers based on EWA and would consider resigning if not offered."

ADP’s on-demand webcast - Offering Earned Wage Access: Strategic & Compliance Considerations - further explores the rising demand for EWA and offers critical insights on both federal and state requirements.

Source: ADP

(Links and quotes via original reporting)

Earned Wage Access (EWA) allows employers to let employees access their earned wages before their next payday. EWA can be beneficial for workers struggling to meet expenses but many organisations have yet to get on board. A new survey from ADP has some insight into the reasons why.

The recent ADP survey reveals that - among companies hesitant to adopt an EWA solution for their employees - the potential compliance impact of EWA is cited as one of the reasons organisations have yet to take advantage of this option.

In a recent webcast, Pete Isberg - ADP Vice President, Government Affairs - said that compliance concerns are rooted in the way wages have been addressed historically.

"No state has enacted government regulation for EWA yet to date, and it's not at all unusual for the law to follow practice by 10 years or more," Mr Isberg said.

"Many of our current policies that govern pay were enacted during the Great Depression in response to abusive practices such as paying employees in script, which could only be redeemed at a company store, so many laws still reflect that era. In fact, paying workers electronically, which we take for granted now, faced a decade of legislation during the 1970s."

This could potentially leave employers operating in a legislative vacuum meaning they may tend to proceed with caution.

To increase confidence from a compliance perspective, ADP suggests considering the following points when adopting EWA:

Look to CFPB and Regulation Z for federal guidance

Since EWA involves payment of earned wages in advance of a scheduled payroll date, some regulators have raised the question of whether EWA should be treated as a form of lending.

The Consumer Financial Protection Bureau ("CFPB") recently issued advisory guidance addressing whether the Truth in Lending Act ("TILA") and the related Regulation Z applies to EWA programmes. The CFPB reportedly concluded that certain characteristics can distinguish EWA programmes from being considered credit.

Different EWA programmes vary in key aspects of their process. But some characteristics, as explained in the CFPB's advisory opinion, can make EWA sufficiently distinct to not be considered a form of credit:

• The EWA provider contracts with the employer to offer EWA services to workers
• The amounts available to access are not more than what the worker has already earned
• No reporting of EWA transactions to credit bureaus
• No issuance of post-dated cheques by the worker to the EWA provider
• The EWA provider recovers the withdrawn earned wages through an employer-facilitated payroll deduction or similar recovery mechanism from the employee's next paycheque.

The CFPB emphasises that EWA programmes that vary from these criteria are not necessarily forms of lending. The CFPB guidance is only determinative for those programmes that fit the prescribed characteristics.

State EWA legislation is possible, however, none has been enacted to date

As uncertainty remains, ADP says it is important to note that no state has adopted legislation or formal guidance. A few states have proposed legislation to address EWA programmes. Most would require registration of any service providers and would establish in state law that qualifying EWA programmes do not constitute lending.

Ankit Jhunjhunwala - Director of Product Marketing, Employee Financial Solutions ADP, Inc. - says data tells an important story about the value of moving forward while states explore the topic.

"Today, 76 per cent of workers from all age groups, education and income levels, say it's important for their employers to offer EWA," Mr Jhunjhunwala said.

Citing ADP survey results, he said, "Millennials prioritise offers from employers based on EWA and would consider resigning if not offered."

ADP’s on-demand webcast - Offering Earned Wage Access: Strategic & Compliance Considerations - further explores the rising demand for EWA and offers critical insights on both federal and state requirements.

Source: ADP

(Links and quotes via original reporting)