Top 3 Misconceptions about Earned Wage Access (EWA)

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Last week, I received a call from a childhood friend. After exchanging pleasantries, he went further to explain why he called. His family had been through some financial difficulty lately due to his wife’s sudden health challenges. Before now, he would have opted for a payday loan to meet this unexpected family expense. However, this has only caused him more financial stress, due to the high interest that comes with most payday credit. So he asked for my assistance, to which I obliged.

This story might resonate more with income earners who rely on their monthly wages to cater to their needs. In my last article, I shared some thoughts on an innovative solution namely earned wage access solution, which is an on-demand pay solution that gives income earners access to a portion of their already earned/accrued wages before payday (click here if you missed it).

Although this concept is relatively new in Africa, with a few earned wage access providers attempting to bring the product to market, it is important to clear some misconceptions that I have observed.

#1 — Earned Wage Access (EWA) is a loan.

For many salary earners, the first choice for accessing money, especially in an emergency, is a loan from a financial institution or lending company. This loan will usually come with processing fees, interest, late repayment charges, and in some cases insurance fees.

For example, a loan request of N50,000 over 30 days may come with N1,500 processing fees and a 25% interest flat. This means that the borrower will repay a total of N64,000 for this privilege. If the borrower is unable to repay the loan in full as scheduled, the fees and interest continue to accumulate, often spiraling out of control. This scenario is very common with some loan sharks.

It is also to be noted that usually you can only access this loan once a month and cannot access another one until the current loan has been fully repaid.

What differentiates earned wage access from expensive payday loans or salary advance is the fact that there is no interest to pay or penalties for late repayment. The only cost you will incur for using the service is the transaction processing cost, which is usually a flat fee.

#2 — It will alter our payroll process.

This concept of employees having access to their earned wages weekly or bi-weekly before payday may appear confusing posing questions such as

  • how will the funds be available?
  • how effective can it track the timesheet?

On-demand access to wages has no impact on your existing payroll operations and requires no additional effort from the payroll team. Earned wage access providers like Mkobo.bankcan integrate seamlessly into your existing HR technology systems, and track hours worked then determine the amount of funds available to an employee at any given time.

Also, on-demand wages will be credited to the employee’s account by the provider so you need not bother about cash flow and repayment will be made when the employee receives his/her salary on payday.

#3 — Employees will spend all their earnings before payday

EWA providers like only give an employee access to 50% of their accrued wages. This means that they will still have 50% of their salary on payday.

Also, allowing employees to access their earned salaries saves them from having to delve into their savings accounts in the event of an emergency. This helps them build up their savings.

In conclusion, people operations and management are evolving. More flexibility and better benefits are desired by today’s workforce. Employee benefits like EWA provide employers with a competitive advantage over their competitors, as it helps attract and retain top talent. We propose that businesses should consider employee benefits such as earned wage access to assist their employees in improving their financial well-being.

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