Offering employees advance pay has been a hot topic recently thanks, in part, to a number of startups that allow people immediate access to a portion of their pay via mobile apps. Though the startups and their technology is relatively new, pay advances have been around in some form for generations. They are gaining new respect now because they actually help employees better manage their finances.
This post will discuss how advance pay really helps workers. Note that what you read applies to both instant pay via mobile apps and more traditional ways of advancing workers a portion of their wages. The information pertains mostly to those employees who live paycheck to paycheck.
Financial Management and Delayed Pay
Before the days of organized payroll services like BenefitMall, it wasn't uncommon for employers to pay their workers with either cash or check following the final shift at the end of the week. Some employers even paid their workers daily. With the advent of outsourced payroll came changes. Out of necessity, employers began delaying payday.
Those who still chose to pay weekly would delay making payment until the end of the week following the previous pay period. Others chose to start paying biweekly or semi-monthly, both of which meant waiting up to 10 days for access to pay earned during the first week of the pay cycle.
Though biweekly and semi-monthly pay is good for employers and payroll providers, it is bad for employees who live paycheck to paycheck. Being paid so infrequently makes it more difficult to practice sound financial management because they have to wait too long between paychecks. Even with a solid budget in place, any emergency arising between paychecks can cause big financial problems.
Filling in the Gaps
So how does advance pay help with better financial management? By filling in the gaps. Let us say you have an employee who is paid every other week. Let us also say that employee, who lives paycheck to paycheck, experiences some sort of financial emergency during the off week. What is he or she to do?
One option is to use a credit card. Another is to take out a payday loan. In the absence of both of those options, the employee can always divert money from another part of the budget to cover the emergency. But none of the three options lends itself well to good financial management.
Credit cards and payday loans incur high interest rates. To pay such high rates just to keep oneself afloat between paychecks does not seem reasonable. And of course, diverting money from other parts of the budget could mean other bills do not get paid. That leads to late fees and bad reports to credit agencies.
It's Money They Have Earned
At the end of the day, any advance pay a company might offer is money its employees have already earned. It is their money. To withhold it from them – and thereby force them to rely on credit cards and payday loans – doesn't make sense. You could make the case that it is even unethical.
Advance pay helps employees better manage their finances by giving them access to wages they have already earned. Accessing their pay mitigates the need for high interest credit cards and payday loans. It helps employees stay current on their bills so as to avoid late fees and credit history damage. It is that simple.
If you would like to learn more about offering your employees advance pay, do not hesitate to contact us. We can explain both advance pay and the other payroll services we provide.