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Connecticut DOL Issues Press Release as Warning for Utilizing Earned Wage Access (EWA) Products

04 Jul

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Update Applicable to:Effective date
All EmployersSee Details Below


What happened?

On May 10, 2024, the Connecticut Department of Labor issued a statement that, although not legal advice, warns employers about Earned Wage Access (EWA).


What are the details?


Key takes

  • Earned Wage Access (EWA), also known as on-demand pay or daily pay, are advances of money on future wages or salary to employees that have been earned but not yet paid. They allow workers to access their wages before payday.
  • EWA products come in two forms:
  • Third-Party Advance: A third party gives an advance on future wages to the employee, which is repaid via payroll deduction on the next payday.
    • Employer Advance: The employer, facilitated by a third party, advances wages to the employee. The provider charges a fee, which can be billed to the employer and possibly deducted from the employee’s payroll.
  • Many employees are interested in and use Earned Wage Access (EWA). Critics compare EWAs to payday loans, potentially leading to financial instability. Providers, however, liken themselves to ATMs, charging a fee for accessing earned money.
  • The Connecticut Department of Labor (CT DOL) does not have jurisdiction over Third-Party Advance EWA products, but Employer Advance EWA products may implicate several Connecticut wage statutes.
  • If the employer passes the fee along to the worker in the form of a payroll deduction, the employer must obtain written authorization from the employee on a form approved by the Commissioner of Labor according to Conn. Gen. Stat. Sec. 31-71e.
  • The Wage and Workplace Standards Division (WWSD) has taken the position that the EWA processing fee with Employer Advance EWA products is not wage scaling according to Conn. Gen. Stat. Sec. 31-74, as it is a fee for the service of a third party processing the payment. However, 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 Sec. 31-74.

For additional context on the guidance click here.


Business Considerations

  • Employers should understand the two types of EWA products – Third-Party Advance and Employer Advance, and how they work, and should ensure compliance with Connecticut wage statutes if they are offering Employer Advance EWA products.
  • Employers should obtain written authorization from the employee on a form approved by the Commissioner of Labor if they plan to pass the EWA fee to the employee via payroll deduction.
  • Employers should be cautious that reducing the rate of pay or any other wage deduction for advancing pay may be considered wage scaling, which is a violation and will have penalties.
  • Employers should ensure all appropriate financial disclosures are made to the employee. The fee charged should reflect the costs of the service in providing EWA, and should not reduce the employee’s wages below minimum wage or impact overtime pay.


Source References

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This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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