Earned Wage Access (EWA) allows employees to access their earned wages before the standard payday. While EWA aims to help avoid financial shortfalls and reduce the need for loans, it also comes with its own set of challenges. Although this model is already established in countries like the U.S. and the UK, it is still in its infancy in Germany. We explored why EWA is struggling to take hold in Germany.
The world of work is evolving, and the shortage of skilled workers is accelerating this transformation. “New Work needs New Pay” is a popular demand that highlights the need for modern work models to also have flexible and contemporary compensation structures. New Pay refers to salary models that are tailored to the individual needs and life situations of employees, rather than strictly adhering to traditional, rigid salary structures.
The financial industry is not just an adopter of New Work; it can also be part of the solution with FinTech innovations. Flexible Pay is about giving employees access to a portion of their salary before the regular payday. These solutions must be secure, legally compliant, and practically implementable to meet the needs of the modern workplace.
One form of Flexible Pay is Earned Wage Access (EWA). This refers to a solution that allows employees to receive a portion of their already earned salary early, before the usual payday. Legally, this is not considered a loan. However, if more than the earned salary is paid out, it falls under Early Wage Access. Although these terms sound very similar, they have significant practical implications due to regulatory differences.
This article focuses exclusively on pure Earned Wage Access, which literally means access to earned wages. This model originated in the gig economy, a segment of the labor market characterized by short-term and flexible employment relationships. It has become established internationally, particularly in the U.S. and the UK. EWA helps avoid financial shortfalls and reduces the need for loans. Employers benefit from reduced absenteeism and increased productivity. Wage advances have been around much longer than EWA, but they are not well-regarded because they involve high administrative costs due to being labor-intensive individual cases. EWA addresses this issue by automating the process with technological solutions, thereby saving costs. Although EWA is still new in Germany, it could gain importance in the face of rising living costs and a worsening shortage of skilled workers.
In Germany, there are currently only two EWA providers: Happy and Paygood. Both offer app-based solutions where employees link their salary accounts and gain early access to a portion of their expected wages. With Happy, it’s a maximum of one-third, and the payout is made via vouchers that can be redeemed at various retailers. With Paygood, however, employees can receive up to half of their monthly net salary in advance. The payout is made by bank transfer. Other providers, not yet active in Germany, offer advances through a prepaid credit card, which speeds up the payout process even more.
At neosfer, we came across New Pay and EWA some time ago during one of our DRIFT processes. We use DRIFT as a structured innovation process to develop and validate new business models. During the process, colleagues from our three teams Invest, Build, Connect work together. The goal of DRIFT is to discuss innovative ideas and transfer the best of them into the 100-day program, where they are developed into prototypes.
We find the topic of EWA so exciting because it touches on our two passions at neosfer: sustainability and FinTech. EWA providers promise to increase financial flexibility through early wage payments and improve the financial well-being of employees. This is supposed to reduce financial stress and help at-risk individuals achieve financial inclusion, aligning with the eighth UN sustainability goal: Decent Work and Economic Growth. However, scientific evidence supporting this argument in Germany is still lacking. From a FinTech perspective, it’s equally intriguing: Although the demand for faster access to earned wages seems straightforward, the underlying processes between employees, employers, EWA providers, and commercial banks are highly complex.
We looked at the international success stories of EWA. Compared to them, the activities in the German market are very modest. And we wondered why that might be. We spoke with several experts about the current status of New Pay via EWA in Germany and compiled this list:
“Flexible-pay solutions are still largely unknown in Germany,” says Boris Alles, a specialist in labor law at CMS Hasche Sigle. It sounds simple, but when neither employers nor employees know about the innovative tool, no one thinks to use it in practice.
A challenge for EWA in Germany is undoubtedly that the EWA model operates at the intersection of two heavily regulated areas: “It involves financial market regulation, meaning payments, accounts, and financing. These are complex topics that require strong organizational and capital resources. Therefore, not everyone can offer EWA. Additionally, you have to deal with HR payroll, which is also regulated,” explains Jan Riem, founder of the EWA solution Happy.
“Companies in Germany are generally more cautious when it comes to changes in proven methods,” adds Kira Falter, also a specialist in labor law at CMS Hasche Sigle. Monthly payroll processing has been standard in Germany since the founding of the Federal Republic and is enshrined in law. “Introducing something like this throws payroll departments into chaos, and you have to fight against habits that have been established over decades,” says Laurent Burdin, founder of the innovation consultancy Space & Lemon.
Even though EWA doesn’t incur interest, it is still costly: “In the classic B2B model, as known from other markets, onboarding costs arise from proxy accounts and employee KYC,” explains Jan Riem. “Added to this are the financing costs for using EWA. These costs are usually passed on in the form of transaction fees or subscriptions. If the employer does not cover these costs, they can quickly become expensive for employees, especially with frequent use.” High administrative costs also arise from integrating and maintaining administrative systems.
In Germany, there are no binding standards for time tracking and payroll accounting, which complicates the integration of EWA systems. “Integrating EWA systems into existing payroll and HR systems can be technically challenging,” says Tim Schütte, General Manager at Paychex, whose employees handle payroll for over 6,000 companies. In other EU member states, there are also no unified standards, making the expansion of EWA even more difficult, notes Kurt Beckers, Co-Founder and Managing Director of the EWA solution Paygood.
Another reason for the reluctance toward EWA in Germany is the fear of over-indebtedness. “Even without interest, this poses particular risks of over-indebtedness that employees could face,” says Sally Peters, Managing Director of the International Institute for Financial Services (IFF), which conducts practical research on financial consumer protection. Innovation researcher Laurent Burdin adds: “After half the month, you can request a quarter of your salary. Does that contribute to financial health? I don’t think so. On the contrary, it’s a warning sign.”
Why is EWA more widespread in other European countries? In France and Spain, there is a legal right to wage advances, which has given providers an advantage, explains EWA founder Jan Riem. Cultural differences also play a role, notes Laurent Burdin: “Weekly payments are common in the UK. This means getting your salary very quickly. I once studied in England and paid my electricity bill weekly, not monthly. With this rhythm, you’re already much closer to EWA than we are in continental Europe.”
The German financial system offers employees relatively quick, secure, and inexpensive credit options, such as overdraft or consumer loans, explains Tim Schütte from Paychex. Additionally, a well-established social safety net, including unemployment and welfare benefits, helps cover financial shortfalls. As a result, the demand for EWA in Germany may simply be lower compared to other countries.
WA, as an instrument of New Pay, has the potential to increase employees’ financial flexibility and contribute to financial inclusion. However, in Germany, it faces challenges. Low awareness, strict regulatory requirements, and the reluctance of German companies hinder its introduction. Additionally, the costs of EWA, including onboarding and administration, are high. The lack of payroll standards and the fear of over-indebtedness also contribute to the hesitation. Cultural differences and Germany’s social safety net may further reduce the need for EWA.
In the long run, however, monthly salary payments are not a natural law; they have become an entrenched part of German work culture over time. And cultures can change. In the context of megatrends like “instant gratification,” a flexibilization of salary payments seems entirely possible. Awareness could increase, regulators could provide clarity, and companies could become more open, especially as the next generation of decision-makers takes on key roles. Who wants EWA, who is against it, who benefits, and who doesn’t—these questions remain unresolved. At neosfer, we will continue to observe this topic with curiosity.
