Is India ready for Earned Wage Access?

The age of flexibility is definitely here to stay. Over the last two years, many companies were forced to allow their employees to work from home. Now, even though the pandemic is on its way out, many organisations have made some of their roles permanently remote or have decided to give their workforces, or at least a part of them, the liberty to choose to work remotely. With this level of flexibility, companies are now offering flexible benefits instead of fixed ones. Be it financial wellness, insurance covers or medical and healthcare benefits, organisations are allowing their employees the flexibility to choose what they want and how much they want.

Now, a new concept of financial wellness is trending — the Earned Wage Access (EWA) solution.

“It is going to be a nightmare for administrative teams in organisations to manage EWA, if the salary becomes accessible at the whims and fancies of the employees”

Kinjal Choudhary, management consultant, D360One Consultants & former CHRO

What is EWA?

While it is not entirely unheard of, the concept is still new to many. Similar to an on-demand payday solution, EWA allows workers or salaried employees to access their accrued salary at any time or day of the month. For instance, in India, traditionally, all employees have a fixed payday, that is, a particular day of the month, when they receive their pay cheques or salaries. That is how the pay cycle works. However, EWA breaks this traditional salary payment system that permits employees to access their salaries only at the end of the month or after the specific pay day. It gives employees or workers access to their accrued salaries on any given day of the month, so that they can use it to meet any immediate expense, if they so wish. Many fintech firms that offer such services to employees and companies, term it as a financial-wellness tool for their.

The concept of EWA has been accepted in the West for some time now. In fact, in 2017, Walmart decided to implement this scheme with the help of an external vendor, a fintech company.

Is India ready for EWA?

The question that arises at this point is, whether EWA will be an equally accepted form of payroll cycle in India.

Well, if we look at the benefits of this on-demand pay cycle, it will certainly provide flexibility to people to access their earned wages and salaries at all times. As a result, it will enable them to plan their expenses and savings much in advance. Apart from flexibility, it will also work as a financial-wellness tool for employees, enabling them to access funds whenever required, in case of emergencies or crises.

“Given the kind of backgrounds workers come from, especially in the retail sector, some may be too naïve and may fail to use such a service judiciously. They may even end up trapped in a vicious debt cycle”

Shashikanth KS, COO & CHRO, Chai Point

While some companies in India have implemented and are successfully using EWA as a service for their employees, HR leaders are wary about the EWA solution fitting into the lifestyle or culture of the Indian workforce.

Administrative nightmare: Kinjal Choudhary, management consultant, D360One Consultants & former CHRO, sites a major problem of clearing statutary dues in terms of provident fund (PF). He feels that giving people the flexibility to access their wages any day of the month, will demand a lot in terms of administrative work. Traditionally, every company is entitled to clear the PF dues at a fixed rate, that is, a specific percentage of the total salary of an employee. The biggest challenge for companies will be the management of these statutary dues. “It is going to be a nightmare for administrative teams in organisations to manage EWA, if the salary becomes accessible at the whims and fancies of the employees,” points out Choudhary.

Attrition issues: Another big challenge that HR heads foresee is that of absconding workers at the shop floor. This is a real problem in India, where workers take their salary in advance and quit the job. In case of EWA, as the workers will have access to their accrued incomes at all times, they may just take the money and quit the job. This will also create an attrition issue on the shop floors.

Work culture: “The EWA concept is way ahead of its time in India. Such a change will need a major transformation in the culture of the organisation as a whole,” explains Sharad Sharma, CHRO, Pramerica Life Insurance.

In fact, Sharma believes that salary advance, which is a widely-accepted and used concept in India is a better option than EWA, where employees can seek salary advances to deal with emergencies. He is of the opinion that EWA will work way better in industries which are stable and where employees do not hop jobs quite frequently. “In the Western professional culture, the longevity factor is quite high. Employees stick around with their companies for long. In India, on the other hand, there are many industries where the attrition is very high. I think EWA is a much evolved concept and the Indian workforce may not be prepared or ready for it at this point of time,” opines Sharma.

Shashikanth KS, COO & CHRO, Chai Point, does see some positives in EWA, especially for the retail workforce. Most of the people who work in the retail space, in the frontlines, come from humble backgrounds. For them, EWA can be very helpful in meeting some immediate or unforeseen expenses.

“The EWA concept is way ahead of its time in India. Such a change will need a major transformation in the culture of the organisation as a whole”

Sharad Sharma, CHRO, Pramerica Life Insurance

At the same time, Shashikanth also cautions that the EWA may not always encourage a positive behaviour amongst the employees. “Given the kind of backgrounds workers come from, especially in the retail sector, some may be too naïve and may fail to use such a service judiciously. They may even end up trapped in a vicious debt cycle,” points out Shashikanth.

In some states of the US, EWA is not compliant with the legal structure of the state. It is seen as another form of predatory lending by many, because employees may be required to pay certain administrative charges to use the service. Also, some organisations may put this expense burden on the employees, which, instead of reducing the employees’ stress, only enhances it further.

At this point of time, it will be difficult to say whether EWA is a benefit for employees, because in India, especially the younger workforce, may not be mature enough or equipped to manage their expenses in such a manner. The older generation, on the other hand, is used to the monthly pay cycle. For them, therefore, it may be difficult to get used to this concept at first.