It isn’t uncommon to see salary advances offered as a benefit in a job listing. While they are growing in popularity and do have their benefits, salary advances can also raise some issues for employees. In this blog, we will discuss the opportunities for financial freedom by exploring the alternatives to salary advances.
What is a Salary Advance?
A salary advance is when an employer gives an employee the opportunity to borrow their wages ahead of payday. This doesn’t mean that the employee gets their wages early, it instead means that by accessing their wages, employees are receiving a loan from their employer. This is where the problems begin to show as with a salary advance being a type of loan, employees run the risk of not being able to pay the loan back.
What are the benefits of Salary Advance?
Salary advances are an attractive option for employees as there are so many benefits. Employers can improve employee wellbeing with salary advances as it puts the power in the employee’s hands to manage their finances throughout the month rather than having to budget until payday at the end of the month.
From an employer perspective, giving employees the option of salary advances is a very appealing job offering. Enabling employees to access their wages ahead of their usual payday would help employers to attract and retain the top talent.
What are the negatives of a Salary Advance?
A salary advance is a short-term loan but not in the traditional sense. By using a salary advance scheme, employees are borrowing money from their own wages. While this sounds like a helpful solution, since employees are accessing their wages early, they are at risk of not having enough money at the end of the month turning this attractive job incentive into a negative.
This ability for employees to access their money early can encourage financial irresponsibility as instead of budgeting until their usual payday, employees can access their wages as and when they like. Employees could get to the end of the month and realise they are unable to afford their bills and properly organise their finances as they are accessing their wages in advance and spending it straight away, rather than doing their usual budgeting for necessities.
What are the alternatives to Salary Advance?
The idea of a salary advance has developed over the years and a newer version is available called Earned Wage Access. Earned Wage Access (EWA) is a financial service offered to employees allowing them to access a percentage of their accrued wages before the end of the current payroll cycle preventing employees from falling into debt.
There are many different suppliers of Earned Wage Access and therefore can be offered in various different ways. Earned Wage Access from Income Group is free for employees, as employers absorb it as a cost of employment, often with a positive ROI.
Find out more about how Income Group could help workers with our Earned Wage Access solution.