Do your employees ever ask for pay advances?
As personally stressful and humiliating as it might be for someone to come in and ask you for a paycheck advance, it also creates a lot of work for you, right?
Maybe you’re the supervisor, and to give someone a payroll advance you, have to fill out a form and get your manager’s signature. Or maybe you’re worried that if you do it for one employee, then word will get out, and others will ask for a paycheck advance too, and the paperwork will never end. Maybe you’re even a little miffed that your workers can’t manage their finances better.
Or perhaps you’re a small business owner simply trying to “do the right thing” for your workers, which includes helping them deal with occasional financial emergencies. But even if you use the simplest accounting software in the world, issuing a pay advance is still a cumbersome, non-routine procedure.
A pay advance (or payroll advance) is a short-term, unsecured loan granted to employees by their employers. Essentially, it involves the employer agreeing to release payroll funds to the employee in advance of their regular payday. In most cases, these advances are designed to help the employee cover an unexpected or urgent expense that can’t be delayed till payday.
Paycheck advances (or payroll advances) can be used to meet any short-term financial need such as medical expenses or any other unexpected or emergency costs. The amount is deducted by the employer from the employee’s regular monthly or biweekly salary run.
An employee loan is an amount that a person borrows to meet a longer-term financial need, such as an investment in a car or home or even educational expenses. It’s essentially a debt that’s repaid over an agreed period.
Payroll advances are often requested by employees who work from paycheck to paycheck or suddenly find themselves cash-strapped and needing to fund sudden expenses before their salary is credited.
Payroll advances can make life easier and less stressful for employees who run into unexpected financial trouble. However, if employers fail to put clear guidelines and guardrails in place, it’s possible that some employees might start abusing the system.
As an employer, if you go down this route, you need to be diligent about establishing a payroll advance policy that all employees must follow without exception. These should be incorporated into your employee handbook and widely communicated.
With a credit cash advance, a person borrows a certain amount of money against their credit card’s line of credit. Unlike payday advances, they’ll usually pay a fee for using this service.
Payactiv’s Earned Wage Access (EWA) solution is the smart choice for employers and employees alike and a better option for everyone than payday loans and paycheck advances.
It’s a service that allows employees access pay they’ve already earned but not yet collected before their regular payday.
Our EWA service is low-cost to employees and zero-cost to employers. Our unique operating model means that our service doesn’t involve lending money to employees – we simply provide access to their earned cash early. There are no credit checks and no adverse impact on credit histories.
We offer a SaaS-based service so that employees can access the service anywhere, with a smartphone. We also offer rewards and access to better banking and financial management services. Our service integrates fully with the systems provided by the significant payroll providers to align fully with your payment process from the get-go.
So, let’s compare the processes required to provide an employee with a pay advance, both before and after making the Payactiv solution available at your company:
Here are the actual instructions provided by one popular accounting tool for small and medium enterprises, instructing you how to issue a payroll advance to an employee (I’m not making this stuff up):
1. From the Desktop Banking menu, select Write Check.
2. Select the bank account from the Bank Account drop-down list.
3. Select the date for the check.
4. Select the employee from the Pay to the Order on the drop-down list and click OK on the warning screen.
Note: The advance check is a regular check and will not affect payroll taxes.
5. Enter the dollar amount of the advance below the check date.
6. Select the account from the Expense tab Account drop-down list.
(Note: The account for this should be the same as the account that will be used to pay back the advance so that the accounting portion of it is correct and is usually an asset account or other current asset account).
Optional: Select the class from the Expense tab Class drop-down list if you want the check to affect a class.
7. Check the Print Later box next to the Print
8. Click Save & Close.
1. From the File menu, select Print Forms and click Checks.
(Note: If the check does not appear in the Select Checks to Print window, make sure you have the correct bank account selected in the Bank Account drop-down list and that you checked the Print Later box next to the Print icon.)
From the Desktop menu at the top, click Lists >Payroll Item List.
Note: You should only enter a default rate and limit if the rate and limit will apply to everyone using the item. Otherwise, you should enter the rate and limit in the employee’s profile.
Here are the instructions for issuing a payroll advance to an hourly employee after your company has made the Payactiv app available:
1. Don’t open your accounting program, and don’t access the payroll system.
2. Don’t write any checks, fill out any forms, or look up any account numbers.
3. Accept your employees’ gratitude for allowing them to deal with their financial emergencies on their own, like the adults they are.
Payactiv provides a frictionless payroll advance process – so frictionless that you’ll no longer be required to play judge and jury in deciding whether a particular worker’s financial need merits an advance. You won’t even have to know when a worker gets a pay advance because any worker will be able to get an advance whenever they decide they need one, without having to give up their privacy or dignity.
Importantly, the Payactiv solution isn’t a payday loan or paycheck advance; it just gives workers a frictionless and timely way to access the money they’ve already earned. Workers can even use the app to put money aside in a savings program, automatically.
And you know what else is frictionless? Deciding to make the Payactiv app available, to begin with.
Payactiv costs your company nothing at all to install or use and has no effect whatsoever on your cash flow because we fund each transaction. It requires no integration with your accounting or payroll systems, violates no financial regulations or privacy rules, and is so easy to implement that you can make it available to employees literally within a few days of deciding to do so.
Payactiv is a real-time, frictionless solution for your employees’ between-paycheck financial needs.
Why wouldn’t you offer it to them?
* The Payactiv Visa Prepaid Card is issued by Central Bank of Kansas City, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Certain fees, terms, and conditions are associated with the approval, maintenance, and use of the Card. You should consult your Cardholder Agreement and the Fee Schedule at payactiv.com/card411. If you have questions regarding the Card or such fees, terms, and conditions, you can contact us toll-free at 877-747-5862, 24 hours a day, 7 days a week.
** Central Bank of Kansas City is the issuer of the Payactiv Visa Prepaid Card only and does not administer, endorse, nor is liable for the Payctiv App.
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