In every workplace, there are times when even the most conscientious employees may find themselves dealing with issues outside of work. Such setbacks could come in the form of illness, a death of a loved one or a catastrophic event. The employee may find that the savings they are insufficient to cover the emergency that they are dealing with. As such, they might request for a payroll advance to tide through the difficult times.
A payroll advance is a loan which is provided to employees. It is taken out of the employee’s wages before their next normal pay day. There are usually repayment terms in which the employee is expected to meet. The employee can either choose to repayment the payroll advance in small installments out of a certain number of future paychecks or repay the full amount from their next paycheck.
While most companies are not obliged to pay employees in advance, many tend to do so when employees have legitimate reasons.
Excessive payroll advances
Payroll advances in organisations are generally uncommon and are usually requested from employees when they have legitimate reasons. However, payroll advances can be a problem when they are requested on a regular basis.
Approval of payroll advance to an employee have a tendency to go viral as well. Once other employees find out, the HR department might be inundated with requests from other employees as well. This may result in tensions between employers and employees.
Persistent payroll advances can restrict cash flow within organisations and incur extra processing and paperwork in the Finance department. Here are some ways to manage payroll advances within the HR and Finance department.
When it comes to issuing these advance, favoritism should be avoided. Essentially, if the HR department decides to approve payroll advance to one employee, it should be the same practices for other employees as well. Of course, this is again subject to reasons provided by the employee and has to be legitimate.
Implement a policy
To avoid an undesirable scenario of employees accusing management or the HR department of favoritism, the best way is to implement a policy. For instance, employees are required to work for a minimum of six consecutive months before they can request for a payroll advance. Establishing a policy will ensure that all employees can be held to the same exact standards.
Set limits on payroll advances
Limits should also be set on the loan amount that an employee can request. It does not make sense for the HR or Finance department to grant an employee a payroll advance that is substantially higher than their monthly or even quarterly savings. Similarly, limits should also be placed on the number of times that an employee may request for a payroll advance within a single year.
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