Earned wage access unlocks funds for urgent needs

On-demand wage access service FloatPays says South African employees spend up to 80% of their income on servicing debt, leaving them with 20% to make ends meet. Earned wage access (EWA) offers an alternative way to get them through the month, freeing up money already earned to pay for necessities.

This article explains how EWA enables employees to access money they have already earned to cover essential costs before payday arrives.

Tip: Is your debt burden keeping you awake at night? Debt consolidation could be your solution.

A safer funding solution

A massive 78% of South Africans turn to expensive – and often predatory – short-term credit to survive until their next payday, says Rinaldo Morgia, chief sales officer of earned wage access solutions company, PayCurve. EWA aims to alleviate reliance on this kind of credit.

“Growing up, we may have been taught to live within our means, create a savings account for emergencies, and use our salary to cover monthly expenses. EWA offers an additional option to provide employees with the cash flow they need. It’s also up to 95% cheaper than regulated credit,” says Morgia.

How does EWA work?

EWA integrates with an employer’s payroll system to calculate an employee's earned wages. The employer sets the percentage of earned wages that an employee can withdraw, says Simon Ward, founder and CEO of FloatPays.

“The amount you withdraw against your wages is calculated, and automatically deducted from your pay at the end of the payroll period,” Ward explains.

Under normal conditions, for each completed workday, you earn a day’s worth of your salary. After working 22 days, your full salary is earned.

The problem for many is that the payday cycle is too restrictive. EWA unlocks a small portion of each day’s earnings, and makes it available as a financial safety net.

For example, let’s say that for each completed workday you earn R1,000; and that your EWA account allows you to access 10% of this. As you complete workdays and accrue your salary, EWA unlocks R100 for every full day worked. This means that, should you find yourself in the middle of the month needing R500 to pay for transportation, you can access this amount via your EWA account.

Alleviating financial stress

According to Morgia, financial stress is not created by the R500 you may be short to cover transport costs, but by the fact that it has to be repaid to a loan shark – along with sky-high fees.

“The high fees associated with short-term credit see employees trapped in debt, starting each month on the back foot. In the course of multiple case studies, EWA users have been seen to break the short-term debt reliance cycle in a mere two months,” says Morgia.

Ward believes that every employee should have the opportunity to build wealth for themselves and their families. FloatPays is more than earned wage access – it’s a financial wellness platform that helps people reduce their reliance on debt, start saving, and learn how to better manage their money.

“Studies have shown that financial stress leads to absenteeism, reduced presenteeism, and errors stemming from a lack of concentration, mood swings and sleeping and eating problems. South African employers can curb this slippery slope of financial despair by taking an integrated approach to nurturing employee wellness,” says Ward.

Use EWA responsibly

“To build financial stability, EWA must be used responsibly,” Ward notes. “This is why we, and other EWA providers, offer budgeting tools and free financial education. Topics covered include interest, credit scores, and budgeting.

“Financial education is key to helping people use their money in general – earned wage access or not – more responsibly.”

You can use your EWA for anything you want, but it’s not meant for non-essentials or non-emergencies. Employers and EWA providers work together to put specific withdrawal rules in place, ensuring that employees use the service as responsibly as possible.

In addition to limiting the proportion of earnings you can access, the number of withdrawals you can make in a pay cycle may also be restricted.

According to Ward, most of FloatPays’ users withdraw money to pay for emergencies, transport to and from work, and school fees for their children. Employers tend to set the access limit to about 25% of an employee’s pay.

Tip: If you have a little cash left over at the end of the month, consider growing your wealth with unit trusts.