Have you ever given a payroll advance to an employee? Employee advances are something that many employers give quite regularly. It can be easy to see why – many workers live paycheck to paycheck. To sooth their cash-flow woes, many of them resort to predatory products such as payday loans. And if they have short term cash flow gaps, they are hit with high overdraft fees – a more than $60 billion industry. As an employer, you are in a great position to help employees with their financial wellbeing through providing employee advances.
At first glance, this can seem difficult: Providing cash advances to employees can be a burden. If you are thinking about managing cash advances for employees, maybe think again. What happens if you favor Jack over Jill? What if you are only providing advances to employees who work a certain number of hours or maybe only employees who are paid on a salaried basis? Do you have the time to put a specific policy in place?
Chances are you are running a separate "pay run" for these employees, or at the very least you are cutting them a check. At least one individual in your organization will be involved in administering this, not to mention the conversation needed to be had with the administering employee. Having the conversation, providing the payment, and then reconciling or keeping track of installment payments isn’t where your energy should be focused.
However, if, like most companies, you use an automated payroll solution, you can probably just program an advance for a paycheck. It will set up the change accordingly, and you can note the term—such as a corresponding reduction in a future paycheck—in the system. Best of all, if you use a third-party payroll provider, you can take care of it with a phone call.
For the same reasons employees need cash advances, we know employers have A/P and A/R that they need to constantly manage. Employee advances can disrupt this flow of funds and, worse yet, if you overextend an employee and they decide to quit, you will be left with the bill. That's why you need to be careful.
But at the end of the day, this is something you should consider. What are the advantages to you? By offering advances, you may find yourself with a happier and more productive workforce. Employees who are temporarily short on cash will feel a strong sense of loyalty to a company that helped them out. Also, they will be more focused on work—instead of their financial problems.
That means it's worth taking the time to set up a policy so you're treating employees fairly and equally, instead of granting or refusing advances on a whim. Consider what is both prudent and helpful, to aid your employees while protecting yourself. Give us a call and we can help you set up a surprisingly easy system--an employee benefit that will help staff and owners together.
Another alternative, if you are a client of Pay Tech, we have a partnership with Zayzoon, which offers payday advances to our client’s employees, and then manage the funding and the collection. It is integrated with payroll, with no risk to employers.
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