As a manager, you may be asked to give your employees access to their pay before payday. This practice is called an employee pay advance in most cases. While some may believe there are benefits, there are also some risks that you should be aware of before you agree to it.
Risk #1: Financial Distress for the Employee
If an employee is already struggling to make ends meet, giving them an advance on their paycheck could deplete what they received at the end of the pay period. In addition, the employee may feel pressure to spend the money immediately instead of holding on to it so that they can pay their bills later. This could lead to even more financial distress for the employee down the road.
Risk #2: Increased Pressure on the Manager
When an employee asks for a pay advance, they are essentially asking their manager for a loan. This puts the manager in a difficult position because they may feel like they have to say yes in order to keep their employee happy. If the manager does agree to give the advance, they may feel like they need to keep a closer eye on their employee’s financial health.
Risk #3: Misuse of Company Funds
Giving employees access to their pay before payday can also put the company at risk. If an employee uses their advance, and then, decides to leave the company this puts the company in a bad position. This can lead to both financial and personnel problems for the business down the road.
Risk #4: Administrative Burden
Managers have an additional burden when it comes to paying advances. Not only do they submit the advance, but also make sure that the advance is deducted from their paycheck in order for the business to not be out of additional funds!
Employee pay advances can be beneficial for both employees and employers, but there are also some risks that should be considered before agreeing to one. As a manager, you should weigh the risks and benefits of giving an employee an advance on their paycheck before making a decision. If this is a common practice in your company, you should consider making this a more standard practice by using a company like Immediate to allow employees access to their earned but unpaid wages at no risk to the business.
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Written by: Michael Orme, COO of Immediate