Are You Issuing Predatory Loans to Your Employees?
D.C. is one of the most expensive cities in the country, and you like to think that you are doing your part to contribute to the prosperity of its inhabitants by operating a small business where you sell your products or services to customers at affordable prices while paying your employees a fair wage. Of course, working people find that their paychecks disappear quickly, especially in major metropolitan areas like the DMV; it is possible to have a household income of well over $100,000 and still live paycheck to paycheck. If people who have the choice of taking a blue line, orange line, or silver line train to their salaried jobs in downtown D.C. are still broke, what hope is there for the folks who get paid hourly, like your employees? You are helping to ease the burden by hiring them as employees instead of independent contractors, so that at least they don’t owe the IRS a whopping 30 percent of the income listed on their 1099 forms. Despite this, unless you are rich, it costs a bundle to spend your own money, even when you are spending it on boring necessities like groceries and utility bills. Many hourly employees get their pay through earned wage access apps, and if you issue paychecks this way, you may need to make some adjustments when the Consumer Financial Protection Bureau (CFPB) issues new rules. To make sure that your small business is following the current employment laws, contact a Washington, D.C. small business lawyer.
Are Earned Wage Access Apps Turning You Into a Horrible Boss?
Millions of employees participate in earned wage access (EWA) programs, sometimes directly through their employers and sometimes through third party apps like Dave, Brigit, Payactiv, EarnIn, Branch, and DailyPay. EWA enables workers to pay bills using the money they have earned during the current pay period but before payday, and on payday, they receive only the amount that they have not spent yet. Some EWA apps estimate the amount that the employee is expected to earn during the pay period, effectively enabling workers to access money that they will theoretically receive in exchange for work that they will theoretically do. In other words, at the shady end of the EWA spectrum, the line between EWA and payday lending becomes blurry.
The CFPB is considering classifying EWA products as consumer loans, and if it does this, then EWA apps will need to provide disclosures about the annual cost of using them, so that consumers can compare them to other financial products such as credit cards. This will show workers that EWA is more expensive than a credit card. The CFPB has asked employers and employees to weigh in on the subject before it makes a decision. If you want to let the CFPB know how EWA affects your small business, contact the CFPB by August 30.
Contact Tobin O’Connor Ewing About Payroll Questions
A Washington, D.C. small business attorney can help you make payroll affordable for you and your employees. Contact Tobin, O’Connor, and Ewing in Washington, D.C. or call 202-362-5900.
