The process of applying for a salary advance is well established, time-consuming, and extremely undignified. People often ask “If I want to get an advance on my salary, is there an application form I need to complete to get one?”
Getting an advance on your salary has traditionally involved submitting a request to one’s line manager (accompanied by a suitably convincing justification), completing the relevant application form, then waiting for a decision to be made.
The application process is typically mired in layers of bureaucracy, meaning that multiple signoffs and committee reviews are required before a decision can be made.
More often than not, the response is negative. This is mainly because it is complex to administer as payroll processes and systems are configured for regular, monthly payments as opposed to one-offs. But it is also because employers, and payroll teams, in particular, are reluctant to establish any precedent for advances or be seen to encourage such behaviour.
Not surprisingly, salary advances have acquired a negative reputation and a cloak of shame. Due to their exceptional nature, justifications are rarely used more than once so repeat requests must be accompanied by an original, equally convincing reason.
As a result, it is not uncommon for them to be shared discreetly amongst employees, with reasons that are tried, tested, and generally proven to work being in high demand. There is even a forum on Reddit for them!
This state of affairs is placed as a result of the processes and systems that the contemporary workplace has taken on. Most ‘advance’ requests are nothing of the sort.
They are simply demanding to access wages that have already been earned; money that is (by right) already due to them but it is being held by the employee due to the embedded practice of monthly pay.
Any assessment of salary advances must take into account the shortcomings of the status quo. This means assessing the alternative services that working people turn to in the absence of options being made available by their employer.
The continuing success of PayDay Loan providers indicates persistent demand for low value borrowing to offset short-term expenses. PayDay Loans are forms of credit that incur high levels of interest for the borrower and can serve to exacerbate existing problems of debt.
Despite increasing legislation and some well-publicised bankruptcies, the market for these services remains strong. Research indicates this is because they remain the most accessible and most discreet options for low value, short term borrowing.
Research indicates that part of the appeal of PayDay Loans is their confidentiality and the fact that transactions are conducted in a non-judgemental context.
To this end, it is crucial to respect the dignity of end users and recognise the importance of maintaining confidentiality to alleviate recourse to PayDay Loans.
Recent advances in ‘fintech’ otherwise known as financial technology, are changing the narrative and the perception of salary advances. With on-demand payments and person-to-person transfers readily available in everyday life, people are beginning to expect those same ‘instant’ pay capabilities from their employers.
By providing payment options that reflect the needs of their employees, employers now have a unique opportunity to become a leader in the future of pay.
Fintechs that take advantage of the ‘salary-link’ offer services that support automatic repayments through salary deduction. These services finally give employees access to their earned wages in a manner that is dignified, discrete and fast.
Notable benefits of earned wage access solutions are:
Research from the US indicates that salary-linked products can be more efficient, cheaper, and more inclusive.
The most extensive analysis, conducted by The Harvard Kennedy School in the US, found evidence of improved employee productivity and retention.
It concluded that employer provisions of early wage access,
“are associated with materially lower employee turnover rates, which could potentially save them tens to hundreds of millions annually.”
The affordability of short-term credit will diminish as a result of Covid-19 which strengthens the importance of the role earned advances play.
As we enter an era of labour shortages that obliges firms to compete for talent, progressive employers are finally investing in technical tools that enhance productivity.
Whether it’s closing the gap between shifts worked and salaries paid (which may currently take weeks) or moving from weekly to monthly pay, a mobile service that gives instant access to wages is the ideal solution.
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