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IS A PAYROLL LOAN THE SAME AS EWA?

Published 1 May 2022

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Introduction

Even with the technological advancement around the world, it didn't really change the traditional system of employee salary until now. There are a lot of different terms and concepts involved when it comes to the payment of employees. Some of us might be aware of them, and many do not even have a slight idea; this is why confusion arises. When we talk about payroll, we simply take it as a synonym for payment, but in reality, it is a deep concept. Also, Earned Wage Access is a term and concept that is still very much foreign to people, even from the corporate world. Also, both often get mixed and misunderstood. Let us know what they stand for and how they are different from one another.

What is Payroll?

If we look at the literal meaning of the word payroll, it seems to be nothing but a payment that employers pay to their employees. But it can also be a noun that describes the financial records on the employee's pay. Lastly, it can also be defined as a process that businesses or organizations use when making payments for their employees or a process used for paying taxes.

What is Earned Wage Access?

Earned Wage Access can also be called instant pay, on-demand pay, early wage access, accrued wage access, or salary advanced scheme. Earned Wage Access or EWA is a financial product that equips the employee with access to a portion of the salary they earn sometime before their actual payday. The remainder salary is paid at the end of the pay period without disturbing the payroll.

How they are different from each other?

• Concept: When we try to answer the question of what is the difference between Earned Wage Access and payroll, we land on multiple points. Payroll is distributed among the employees in checks or direct deposits, and it also tracks the taxes paid on behalf of all the employees by the organization. The most crucial point to know about payroll is that it is only used at the end of the fiscal year to assess an employee's wages. If we look at Earned Wage Access, there is nothing about taxes in it, and it is simply a solution that gives access to employees to use a part of their monthly salary.

• Working: Now, let us come to the working of payroll. Technically, it starts with a form that is given to the employee to fill the details in about how exactly they want to be taxed. This information is recorded in the system of an organization and is used throughout the year to pay the taxes on behalf of that particular employee. On the other hand, employees can download the mobile branch application to request their Earned Wage Access funds available on the digital wallet. They enter the amount they require and receive it immediately. This amount is then deducted from the total deposit at the payroll time.

• Benefits: When we talk about the benefits of a payroll system, it helps manage and track funds in a better way. Companies do not want to go after every employee individually to pay taxes. They also cannot keep reminding them about the deadlines and explain to them the process and technicalities of the same. Thus, they take this task into their own hands. They usually pay taxes around the same time and with a proper schedule, so the chances of errors get reduced. Earned Wage Access benefits the employee as it gives them a sense of financial stability and freedom. It gives them access to the right to pay, reduces stress, and nurtures their overall well-being. EWA also enhances the engagement and productivity go employees.

  1. Challenges in handling a Payroll and an Earned Wage Access system:

    Payroll: There are two sides to each coin. Along with the benefits, some challenges come with both Payroll and Earned Wage Access concepts. However, if implemented properly, there won’t be an issue. But for that, we need to know and understand these points carefully. So, let’s take a look at them one by one.

    Earned Wage Access: On the other hand, Earned Wage Access has its limitations. It is often debated as a concept way ahead of its time, especially in a country like India. Taking salary in advance has been a go-to option for employees in case of emergencies. But there are also times when they do this and quit the job later.
  2. And EWA does not really foresee this issue. Thus, the question of longevity that comes with Earned Wage Access has no answers. Also, EWA can work the best to its capacity only if the organizations are stable and have a solid guarantee that their employees won’t hop and switch jobs very frequently. The success of EWA also depends on the culture and background of the employees and how mature they are to enjoy the benefits of this system. However, this is also not something employers can take the guarantee of
  3. When it comes to a payroll system, we cannot deny that we need to input data from multiple resources such as attendance registers, conveyance, etc. It also requires information about the salaries of each employee and the increment in it. Most organizations operate on an excel based payroll system which includes calculation of these salaries using excel formulas. This can result in a complex and challenging process as it requires entering all the information manually. Also, to tackle this problem, organizations or businesses can take the help of different payroll software available, but only after they consult with an expert.
Conclusion: Businesses and organizations cannot keep track of their employees individually. This is why they need the support of systems like Payroll and Earned Wage Access which happens to be beneficial for them and the company. Management of funds is a crucial part of any company. These systems are essential to avoid any mishap and tension between the employers and the employees. With many differences between the two terms that we discussed above, the only common thing is the relief when a financial task gets completed, whether it is about filing taxes or getting a chunk of payment before your actual payday in the time of need.


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Editor Aronjit Roy


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