Michael Royce of MaPS on a sensible approach to employee earned-wage access
The Money and Pensions Service (MaPS) is co-ordinating a 10-year UK Strategy for Financial Wellbeing, in partnership with employers, charities, government, financial services and others. Workplace involvement is one of the cornerstones of that strategy.
Financial education and guidance – provided by MaPS’ MoneyHelper and others through the workplace – help people manage their finances. Increasingly, though, employers are offering this alongside a range of financial products, not only a workplace pension. Earned-wage access (also known as as wage advance schemes) is one such product.
An evidence-based approach
Before considering the growing interest in earned-wage access, it’s important to note that at MaPS we take an evidence- based approach to understanding what works in building financial wellbeing. We encourage employers to do the same. This means understanding what your employees’ needs are, through surveys or other tools, putting in place a plan to meet those needs (often a mix of financial education and financial products) and measuring the impact of this plan to determine future financial wellbeing interventions. Consideration of earned-wage access is no different.
A body of evidence is growing to indicate that earned-wage access, where an employee accesses a proportion of their already-accrued income before payday (perhaps immediately after a shift), is being used sensibly by most people to help them manage cashflow or meet unexpected costs. This can reduce their need for credit.
But earned-wage access on its own should not be seen as a panacea. Employers should always offer this alongside other financial (especially emergency savings) products and financial education. And, while earned-wage access is not credit, there is a minority who use it to mask deeper financial difficulties. This is where referral routes to free debt advice become important for people in this situation.
Code of Practice
Earned-wage access is an unregulated activity and may remain so. Yet, seven leading providers that offer this alongside other financial products through their apps and platforms have created a Code of Practice to govern how they evolve as an industry.
The Code, resulting from a review published by the Financial Conduct Authority in 2020, sets standards for how providers use their data and other tools to ensure that most people continue to use earned-wage access appropriately – and to put in place mechanisms to intervene where people may be using it inappropriately. Employers considering earned-wage access for their employees should review the Code.