Earned Wage Access (EWA), also referred to as “on-demand pay,” is a way for employees to get paid before payday. It has gained popularity among gig workers and many vendors have stepped up to bat to provide this service. It also enables employees to cash-out their earnings when they want/need, even instantly in real-time, which may help some to ease the pain of the ongoing inflation. Coupling inflation with living paycheck to paycheck, many Americans may be looking for help to put food on their tables. EWA can assist employees in meeting their financial commitments. And when strapped for cash, employees with EWA capabilities are more likely to cash-out their earnings frequently. This makes things trickier for the employer.
EWA and Calculating Withholdings
Employers calculate withholdings and make deposits when they prepare paychecks. Employers usually calculate withholdings on a weekly, bi-weekly, or semimonthly basis. This provides employers enough time to properly calculate and remain compliant. Now, if EWA is demanding a more frequent payday, employers may not be calculating withholdings or meeting their deposit obligations fast enough. This may run them into trouble with legislature.
Employers in West Virginia are experiencing this trouble first handedly with the West Virginia Wage Payment and Collection Act (WPCA). This act regulates withholdings from employees’ pay by categorizing withholdings into two parts. The two categories are those required by law—such as taxes—and wage assignment. Wage assignment is withholdings that are not a deduction. The amount withheld from an employee’s paycheck to cover the cost of their work boots is an example of wage assignment. Moreover, this type of withholding is only legal in West Virginia when accompanied by an Assignment of Future Wages form. The employer and employee must sign the form for the specific wage assignment. That’s right. The employer and employee must sign a new form every time a new withholding presents itself as a wage assignment.
For a typical payday schedule, the WPCA Assignment of Future Wages form requirement is reasonable. It buys the employer enough time to fill out a new form and collect those required signatures. However, when an employer goes to accommodate a more frequent—say daily—paycheck, there simply isn’t enough time for the employer to remain compliant.
Updated EWA Legislature Needed
Updated legislature is vitally needed for employers to remain compliant while accommodating EWA. While employees can sit back and enjoy the reward of an instant paycheck, many employers are cutting those paychecks with crippling anxiety.
Overview by Sophia Gonzalez, Research Analyst, Debit Advisory Service at Mercator Advisory Group.