In part 2 of our comprehensive guide to Earned Wage Access in South Africa, we unpack some of the common misconceptions of EWA, and learn what steps you should take to choose a provider.
How is Earned Wage Access Different From Payday Loans?
Payday loans are credit products that extend credit against an employee's next paycheque, often at exorbitant rates.
Early Wage Access is NOT a credit product.
EWA is a company benefit that significantly lowers the cost to employees to access emergency funds and is designed to help get employees out of debilitating debt cycles.
For example, where payday loans can cost employees 20% in interest, EWA via Jem HR comes at a significantly lower cost – only 3.5% plus a flat fee of R6 (standard) or R25 (instant access to funds).
An employee withdrawing, say, R500 in a standard payout pays 3.5% of R500 = R17.50, plus a flat fee of R6, totalling only R22.50 – much more affordable than a personal loan rate (20%, so R100 fees on R500!) or loan shark rates (40%, thus R200 on R500!).
EWA allows employees to access their own earned wages without creating additional debt, whereas payday loans often trap borrowers in a cycle of debt due to high repayment terms and fees. With Jem, employees repay the accessed amount with their next paycheck, preventing any long-term debt accumulation.
Common Misconceptions About EWA
1. Misconception: EWA Encourages Poor Financial Management
This is not true. Studies show that EWA can lead to better financial planning, with 72% reporting they “feel more in control” of their finances with an EWA benefit, allowing them to better manage emergencies without falling into debt.
2. Misconception: EWA is Costly for Employers
Many employers worry about the costs and implementation of EWA. In reality, the cost of integrating EWA is often outweighed by the benefits, such as reduced absenteeism and improved retention and productivity.
In fact, with EWA by Jem HR, there is no cost to the employer whatsoever.
Getting Started with Early Wage Access in South Africa
- Choose a Trusted Provider: Always enquire about the EWA provider’s track record and impact. For example: Jem HR’s EWA has helped Lasec Group reduce employee loan fees by R45k per year, reduced loan requests by 100% at both Truda and Mukuru Financial Services and completely eradicated loan requests at Frankwen Forge.
- Communicate with Employees: Clearly explain the benefits and workings of EWA to your employees. Jem, for example, offers free financial education modules around budgeting, debt, business skills and savings in 4 languages to promote financial literacy.
- Monitor and Adjust: Regularly review the impact of EWA on your workforce and make necessary adjustments to maximise its benefits.
Jem HR will continue to release ongoing research, data and thought leadership covering all aspects of Earned Wage Access. Visit the Jem HR Knowledge Hub to dive deeper into the latest topics.
