Dive Brief:
- Employers must be aware that courts may find that earned wage access fees violate Connecticut law, the state’s department of labor cautioned Friday.
- Connecticut state law prohibits employers from engaging in “wage scaling,” or reducing pay when any wages are paid early.
- The agency itself doesn’t believe an EWA fee would amount to wage scaling “as it is a fee for the service of a third-party processing the payment,” it said, but “employers must be aware that courts may find that reducing the rate of pay or any other wage deduction for advancing pay may be considered wage scaling in violation of [state law].”
Dive Insight:
EWA, also known as on-demand pay, is a way to allow workers to receive their pay before payday, according to the Connecticut guidance. That money in some cases is provided as an advance from a third-party vendor that requires fees via a payroll deduction.
Many workers say they want such an offering from their employers, and data shows they use the option when it’s offered. In the employer-sponsored market, workers accessed $9.5 billion through EWA in 2020, triple the amount from just two years earlier, according to data cited in CNBC reporting. The number of transactions also tripled during that time.
But the products have drawn criticism from some as nothing more than a rebranded payday loan that can put workers in a bad financial position; providers, however, have positioned themselves as more like ATMs — charging a fee for access to money owed to the employee.
State governments and the federal government have taken steps to regulate EWA products. California, for example, is weighing a licensing and oversight requirement. Connecticut has already capped the fees such vendors can charge and driven at least one provider out of the state, according to Associated Press reporting.
The Consumer Financial Protection Bureau, an independent federal agency, signaled late last year that it intends to soon issue guidance on how consumer lending laws apply to EWA.
