It’s not uncommon for employees to need an advance on their wages. When life happens and you need to free up cashflow, early access to earned wages can help employees without raising employer overheads.
Times are hard for many, with living costs rising faster than salaries, leading many households to rely on credit to meet their financial needs. According to Finmark Trust, 75% of adults who borrowed in 2024 used their credit for essentials like food. This issue is particularly stark among low-income earners who often have no other option but to turn to costly micro-lenders and exploitative loan sharks.
A new concept like earned wage access, provides a strong alternative, and digital technologies are making it simple for employers to offer this service.
The burden on low-income earners
Living expenses and debt burdens are putting immense pressure on some households, while others have sudden emergencies such as medical or vehicle bills. A shortfall of household savings often pushes people towards micro- and informal lenders.
These avenues dramatically increase the cost of lending, with legal lenders able to charge 5% interest monthly as well as numerous administrative fees. Such arrangements can lead to cash-strapped earners digging themselves into deeper financial holes. These scenarios inevitably isolate them from more palatable credit options.
While some can borrow against their salaries, it creates considerable work for employers who need to administer the loans, manage repayment processes, and avoid risks such as money laundering and bank account fraud.
This is why TymeBank has partnered with Deel Local Payroll to provide early wage access (EWA), a financial empowerment service for businesses that offers a financial lifeline for struggling employees.
EWA arrives in SA
It is important to understand that EWA is not a standard credit service that loans money to individuals. Instead, an employee withdraws a portion of wages they have already earned that month, paid to a predesignated account or provided as vouchers through retailers such as Boxer stores.
This empowers the employee, giving them the opportunity to access the money as they earn it. Instead of waiting for the 25th, instead of waiting for payday, an employee can draw down when they feel they are ready or when they need the money. This ease of use empowers employees to free up money as needed.
The service first appeared in the early 2010s in the United States, and well over 7 million US workers used EWA in 2022 for $22 billion in transactions, according to the Consumer Financial Protection Bureau report. EWA is very attractive, with most employees expecting such payment flexibility from their employers. Today, major corporations, including Walmart and McDonald’s, offer EWA.
The service is growing in South Africa, where TymeBank and Paymenow are leading the trend in collaboration with Deel Local Payroll’s PaySpace platform.
EWA is a modern fintech product, using automation and API integration to streamline the underlying processes, making access easy while taking care of regulatory requirements. By using a cloud-native payroll platform like Deel Local Payroll, powered by PaySpace, financial institutions extend EWA services to businesses and their employees. It’s fast, safe, and keeps overheads low.
Responsible finances
Is it responsible to let employees access their salaries early? While this is a concern, most employees are using EWA wisely, only accessing relatively small portions of their wages.
According to Paymenow, the average employee draws around 10% of their monthly wages ahead of paydays. As an employer you can also set a cap on withdrawals, typically between 25% and 30%.
EWA avoids lending conditions where fees and repayments can dramatically exceed the loaned amounts. The service also improves productivity and employee wellbeing, since many employees say that financial stress occupies their minds while working, and some spend several work hours focusing on personal finance issues.
Financial worries and lack of access to reasonable credit options are pushing many people to the brink, heaping pressure on their jobs, their families, and their employers. Early wage access, powered by cloud-native digital fintech platforms like Deel Local Payroll, provides an alternative that employees can trust and employers can control.
Book a demo and discover how earned wage access through Deel Local Payroll can support your workforce.