Employers, can you help with the cost of living crisis?
Should you consider a salary advance scheme?
According to a new survey by Indeed Flex, one third of workers would now prefer to be paid weekly, rather than fortnightly or monthly, to enable them to budget better during the cost-of-living crisis. If you don’t want to change your pay frequency, is there another option that could help employees out?
If employees who are monthly paid are currently struggling with budgeting, one option to consider is a salary advance, or payroll on demand, scheme. Essentially, these schemes give employees early access to some of their earned or accrued salary before their next normal payday. This is commonly done through a third-party specialist scheme operator which charges a small transaction fee each time a salary advance (or drawdown) is made. You would then pay the employee the balance of their salary (net of the advance payments and fees) on the next normal payday. Such schemes can help to improve employee financial wellbeing and staff retention rates, but the downsides include:
transaction fees need to be paid, usually by the employee unless you agree to bear the cost - employees may not appreciate the true cost and may find it difficult to compare the fee charged for each drawdown to an interest rate
employees may become dependent on the scheme and so risk getting deeper into debt
they won’t resolve an employee’s wider financial problems
they usually operate outside of credit regulation
you’ll still need to ensure appropriate income tax and NI deductions are made, and there’s an increased chance of payroll errors being made.
An employer salary advance scheme would allow your employees to access some of their salary before their payday, usually for a fee. They can be a convenient way for staff to deal with occasional short-term cash flow, but they do have downsides, so do also consider the potential risks before offering such a scheme to your staff.