Employees are increasingly able to access earned compensation on demand, between pay cycles, when their employees work with on-demand compensation providers (also known as Earned Wage Access , or EWA). Today, with inflation at one 40 years tallsoaring consumer prices accelerated the usefulness of the EWA, especially for hourly workers.
Since 2020, research on the use and benefits of pay-as-you-go for employees has expanded, with findings showing how the benefit helps workers avoid payday loans and overdrafts, for example. On the employers’ side, recent studies also claim that providing on-demand compensation reduces turnover and increases the flow of candidates into industries.
This more detailed and empirical analysis is helping to spur efforts at the federal and state level to clarify and provide oversight to this growing area of payments.
There has been legislative activity on this issue in several states, and while to date no new laws specifically addressing the pay-on-demand/EWA industry have been passed, there have also been initiatives by regulators – very narrow in nature – that seek to explore and define the supply landscape.
Taken together, these lawsuits indicate a growing recognition that providing employees with an on-demand pay option is a beneficial, good-faith business practice, even if the governing provisions will continue to be chopped up. This happens on several levels.
A recent proposal from the Biden administration, included in the green paper explaining the 2023 budget, is an example of how an executive agency is beginning to define the nature of pay-as-you-go, at least from a tax perspective. . Although in a formative phase and unlikely to come into force anytime soon, this policy direction is a positive development. It shows that the Treasury Department should work with stakeholders in the near future to come up with metrics that have minimal impact on employers while ensuring employment taxes are filed in a timely manner in a pay-as-you-go environment. Requirement. And the proposal reinforces the position that service is not credit.
State initiatives, such as the California memorandum of understanding that has involved several EWAs and other entities, are primarily short-term monitoring procedures that primarily serve to provide consumer protection safeguards until until a more formal regulatory regime is put in place. This more formal regime was proposed earlier this year and may be revised or finalized in the coming months.
The notices, which we believe include the Consumer Financial Protection Bureau’s 2020 Fine Sandbox Advisory Notice and Temporary Approval Order, as well as a recent notice from California’s DFPI, were also helpful in pointing out that pay-on-demand processes are becoming more common and mainstream.
But these postings deal with various patterns of facts and are generally not broad judgments or rulings that apply to all vendors – only those seeking the opinion – and are very limited to the facts and circumstances presented by the vendor. applicant. Any language that clarifies a particular process or model in these assessments is specific to an application and not to the exclusion of any other vendor process.
Overall, as pay-on-demand/EWA becomes increasingly popular for employers and employees, smart regulatory oversight approaches must recognize that there are distinct and rapidly changing business models in the field. pay-as-you-go business.
The effort to give regulators and legislators the ability to clarify legitimate approaches to pay-on-demand and identify misleading and unfair business practices is needed. At the same time, however, arbitrary and burdensome requirements should be avoided, as they will limit innovation and overall benefits for employers and employees.