An employer’s guide to wage access and on-demand pay
Life is full of surprises.
As a business manager or owner, you likely know this better than most!
But your employees have to deal with uncertainty on a regular basis too.
And sometimes unexpected costs can appear suddenly.
Vehicle breakdowns, emergencies, and medical expenses can also be nasty financial shocks.
So what can you do as an employer to help your staff when they need quick access to funds?
Salary advances are a perk you might consider offering. But on demand pay can offer significant benefits to employees.
Doing so will mean your employees don’t need to resort to high-interest payday loans.
Let’s dive into the details and find out what salary advances are and whether you might offer them in your business.
What is a salary advance?
A salary advance is a portion of an employee’s earned wages made available to them ahead of their regular payday.
Typically, it is capped by the amount an employee has earned at the time they’re receiving the advance. So if it’s a few days after the last payday, that may well be a smaller sum than if it’s the third week of the month.
The employee is free to use the funds however they need to, and their next regular pay cheque will be adjusted to reflect the amount that was removed for the advance.
Salary advances can be provided directly by employers, but it is more common for third party loan providers, often called earning-on-demand providers, to offer this service to companies.
How do salary advances differ from payday loans?
Payday loans are loans that an individual secures directly from a loan provider or bank. They are typically high interest, meaning those who take them end up having to pay back far more than they borrowed.
Payday loans can offer higher amounts than salary advances if approved, and the repayment terms often span several months instead of being immediately recouped in the employee’s next pay cheque.
While salary advances are sometimes referred to as payroll loans, the lower amount, shorter repayment term, and lack of interest and fees make it a far less risky proposition than a payday loan.
Importantly for many individuals, salary advances are not classed as credit and so typically aren’t subject to credit checks or affordability criteria.
This ‘no questions asked’ approach, balanced by the quick repayment terms and limited amount, make them incredibly helpful for employees dealing with unexpected expenses totalling days’ or weeks’ wages rather than several months.
How to offer your employees salary advances
It’s advisable to sign up to a salary advance scheme using a recognised provider if you want to give your employees the flexibility of withdrawing some of their wages in advance of their regular payday.
While employers can informally offer salary advances from their own finances, this is likely to become infeasible to manage and track with larger businesses.
Unless you have 5 employees or fewer (small enough to qualify for a free Findmyshift plan), setting up a formal scheme is highly recommended.
Once set up, most schemes will require employees to register in advance, and will set out the amounts available, repayment terms, and fees for any loans taken out.
It’s important to do your research here to find a scheme that offers good value to your employees, since some schemes have withdrawal fees that end up cutting into the amounts your employees can access.
Of course, to be able to calculate how much employees can access, any provider will need to know how much they have earned up until the point of the loan.
Using a smart reporting and payroll solution like Findmyshift can make it easy to integrate with loan providers, or export the relevant data to send to loan providers.
Monitor usage and consider more frequent paydays
Once you do have a scheme in place, it’s worth setting up ways to monitor its usage. Many providers will be able to assist with this, and may even have pre-prepared messaging for anyone that you think may be struggling.
If you find that the scheme is very popular, that may tell you something about your employees or your own payday terms. If most employees are using the scheme regularly, could you make their lives easier by paying them more frequently?
Changing your payroll period could be a simpler solution than requiring employees to make use of salary advances most months.
Whatever you decide, your employees will benefit from the effort you’re putting into serving them better.