Are Salary Advance Schemes a Good Idea?

A survey by Indeed Flex has discovered that one-third of workers would prefer to be paid weekly to help with budgeting through the current cost-of-living crisis. What else can you do to help employees that are paid fortnightly or monthly to aid with budgeting?

One option is to offer a salary advance scheme to your employees. This will allow your employees early access to some or all of their accrued salary before their next normal payday. Usually, if you wish to operate this kind of scheme you would do it through a third-party specialist scheme operator, who would charge a small transaction fee every time a salary advance is made. When the next normal payday arrives you would pay the employee the remaining balance of their salary.

Whilst this scheme could boost employee financial well-being and therefore staff retention and engagement, there are certain downsides you should be aware of. These include:

· The transaction fee each time a salary advance is made. Employees may become disgruntled about this fee and fail to compare it to an interest rate,

· Employees may become dependent on the scheme, which may cause them to get deeper into debt,

· This scheme will not solve an employee’s wider financial problems- the total amount of pay that they will receive will be the same (or indeed lower, with the transaction fees accounted for.),

· These schemes usually operate outside of credit regulation,

· Appropriate income tax and NI deductions must be made, and this scheme increases the likelihood for payroll errors to occur.