A loan is a form of debt incurred when money is given to someone in exchange for repayment of the amount plus interest over a period of time.
A salary advance is none of these things. It is simply an adjustment to the time at which workers receive the money they have earned. Like many so-called innovations, it is actually a return to a previous time when workers expected to be paid for their labour at the end of each day.
The internet has revolutionised the way we spend money. In just a few taps on your mobile phone, you can order a cab, a pizza, or a bottle of wine.
But, from a financial perspective, things haven’t changed at all. 75% of the UK population is still paid monthly. Or, to be precise, paid monthly in arrears. In a world where spending money has never been easier, three-quarters of the population, and moreover half of the low-paid population, only receive money 12 times per year.
A chart from the Resolution Foundation indicates that this phenomenon is still getting bigger.
Is this a problem? For most people, it isn’t. Monthly aligns well with bills, savings, and expenses for workers. Monthly pay also suits employers as it aligns with their accounting cycles in respect to expenses and revenues.
There is also a clear logistical consideration: payroll is an overhead and it's much easier for employers to run it 12 times a year, not 52.
However, for a significant minority of the population monthly pay is a problem. A senior executive at a healthcare company recently remarked to us that,
“My staff’s problem isn’t total pay, it’s the speed of pay”.
The point is that the timing of pay can be as impactful as the quantum of pay in terms of the potential impact it can have on an individual’s financial wellbeing or vulnerability.
At Level, we believe it's important to acknowledge that short-term cashflow needs affect all income brackets and that a lack of adequate solutions has fuelled the popularity of payday loans which are outside of an employer’s control and damaging to employees financial health.
By introducing a salary-linked alternative that incurs no interest, and can be settled in full at the end of each pay cycle, employers can stop ignoring the problem and become part of the solution.
It is also important to recognise that short-term and long-term cash flow needs co-exist.
Therefore, offering ‘point’ solutions that only address one or the other will never be sufficient. Salary advances should only be offered alongside an interest-bearing, salary linked savings product, accessible from a single interface.
Level’s most established and engaged customers are enthusiastic users of both services. They adeptly analyse their financial needs and plan accordingly.
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