Salary advance services, Get paid as you go... Call it what you will, the fintech community's fairer (not to mention cheaper) answer to overdrafts and payday loans is here.
Have you ever considered that midway through the month you have a stash of cash you’ve theoretically already earned but can’t spend because you’re only paid at the end of the month? It’s so ingrained in most people’s financial routines that they don’t even think about it. But what if it didn’t have to work that way? What if employees could access at least part of their hard-earned wages early?
A few startups are trying to make this happen, so employees who run into an unexpected expense have an affordable way to face it without going into high-cost debt. It’s generally referred to as a salary advance or earned wage access (EWA). It’s not a new concept, but while 50 years ago it meant going cap-in-hand to your boss, now it can be a tech-driven process initiated and authorised in seconds by the employee themself.
What’s in it for employees?
Asking for a salary advance is normally way cheaper than the alternative – which coud be an expensive overdraft or high-cost, short-term loan.
But better still, since technically the money is already earned, credit checks can be avoided (depending on how the EWA service actually powers the advances). The money technically doesn’t get “paid back” and technically nobody’s going “into debt”.
The flip side is that if you’re not borrowing from a lender, you’re sort-of borrowing from yourself, depending on how you look at it. The money might already have been earned… but nonetheless the next month following a salary advance is going to feel like a long one!
What’s in it for employers?
Employers have the chance to offer an extra perk that both makes them more competitive when it comes to the hiring process and helps them reduce staff turnover at the same time.
Many companies also do it to take care of the financial health of their employees, who, in turn, tend to be less preoccupied and more productive. When people are worried about debt, it can become more difficult for them to stay focused on their jobs.
What’s in it for the startups providing these services?
They’ve found different (but complementary) ways to make money. Some charge a fee to the employer, the employees or both (the fee is still lower than the interest rate you’d get with a payday loan). Others also offer actual employee loans to which they apply an interest rate (again, usually cheaper than what you’d get with a regular loan).
How do they work?
It depends. Normally, the employer has to register with one of these providers. Then, employees can download an app that tells you how much of your salary you’ve already earned and how much you can borrow. If you decide to try it, you can request the salary advance from the app and will be charged a fee in return.
However, different companies offer different services and work in slightly different ways. Let’s take a closer look at some of the players in this emerging market:
The key Earned Wage Access (EWA) players in the UK
Stream (formerly Wagestream)
Stream was founded as “Wagestream” in 2018 by Peter Briffett and Portman Wills. It offers both salary advances and financial education resources that employees can access. Employees are charged a £1.95 fee every time they withdraw part of their salary in advance, and they can withdraw up to 50% of what they’ve earned. There’s also a monthly withdrawal limit of £1,000. In September 2018, the company staged a funeral for payday loans as a publicity stunt (which may have been a tad premature, but you get where they were going… and in fairness they weren’t wrong).
Dev effort to implement/maintain
Medium upfront, low ongoing. But Stream leads on the implementation process, so you’re not on your own there. You can supply payroll info via the API or via SFTP – whatever suits you. The main dev task is mapping to align your workforce management (WFM) systems data model to Stream’s. Turnkey integrations with common platforms like SAP, Sage, Workday, Iris, ADP and more are available. There’s minimal ongoing maintenance to worry about (and very little ongoing impact to your payroll team, who won’t need to make any manual deductions, thanks goodness!).
Ultimately Stream is one of the most (if not the most) widely-adopted EWA services in the UK.
Salary Finance
Salary Finance was founded in 2015 by former head of Google UK Dan Cobley, together with Asesh Sarkar and Daniel Shakhani. The company offers salary advances, employee loans and also Help to Save, a service that automatically takes a portion of the employees’ salary and puts it into a savings pot for a rainy day. This savings pot is held with National Savings and Investments (NS&I), and at the end of each 2-year period, savers get a bonus from the government. For salary advances, employees can access up to 50% of their earned pay and are charged a £1.69 fee per withdrawal.
Dev effort to implement/maintain
Actually the burden is more on the payroll crew. They’ll use Salary Finance’s HR portal and tools like its EVA validation application to verify employee eligibility, download deduction files, upload confirmation reports, and remit bulk payments each cycle. That said, Workday API integration is available to automate ongoing administration for Workday clients. Zero integration is zero hassle for devs, but your payroll person might hate you. And if there’s one person you don’t want to hate you…
Hastee
Hastee offers financial education resources, rewards and cashback, savings tools and, of course, salary advances. Employees are charged a fee of around 2.5%, and how much of their salary they can access early is set by the employer. The company was founded in 2017 by James Herbert and Simon Draper and is especially convenient for employers. Setting up the service is free, and Hastee itself funds the advances, so there’s no impact on the company’s cash flow.
Dev effort to implement/maintain
How much upfront and ongoing hassle there is depends on whether you use API, SFTP or a zero-integration approach (i.e. your payroll team use Hastee’s portal). Hastee supports 80+ payroll, WFM and time‑&‑attendance systems, so many data feeds can be automated. You’ll map employee IDs, worked hours/wages and pay data into their schema and test syncs.
FlexEarn
FlexEarn is another salary advance service that lets employees access the money they’ve already earned early. Employees pay a £1.75 fee per withdrawal, and once they’ve signed up, they can also access a range of financial wellbeing services with Money Helper and StepChange. FlexEarn is free for companies to join and has partnered with Sage to integrate its payroll software. FlexEarn is keen to clarify that it’s not a lending product, and employees do not take on any debt.
Dev effort to implement/maintain
FlexEarn claims implementation can take half an hour, though this assumes you use Sage. It pulls employee and earnings data directly from Sage, so nobody has to manually adjust payroll. Smaller or highly custom payroll setups may need extra mapping or manual feed preparation.
Level
Level markets itself as a Stream alternative. Like Stream, there’s no need for payroll teams to make any manual deductions with Level. It emerged in 2020 and its mission is “giving employees control to access, save and manage their money as they earn it”.
Dev effort to implement/maintain
Medium upfront, low ongoing. Very similar to Stream’s. Like Stream, Level leads on the implementation process, and you can supply payroll info via the API or via SFTP. The main dev task is mapping to align your payroll fields to Level’s schema. Turnkey integrations with common WFM platforms are available, which automatically sync approved hours. There’s minimal ongoing maintenance to worry about.
Is this happening across the pond?
Glad you asked. Yes, this kind of employee benefit is also becoming a thing in the US. PayActiv and DailyPay are companies that operate in a similar way, offering salary advances in the US.
Any catches?
It’s still early days, but there are a couple of things to be aware of:
If your salary can’t support your way of life, you’ll still experience difficulties. It goes without saying that if you withdraw part of your wage early, you’ll get less at the end of the month. Unfortunately, salary advances aren’t pay rises (sigh!).
You may be tempted to borrow more. Since it’s so easy, you may end up withdrawing and spending more than you should throughout the month, then have trouble meeting your regular expenses (such as your rent or mortgage payments).
Your employer needs to jump on the bandwagon. Salary advances aren’t very common yet, and many employers (especially the smaller ones without big HR departments) may not be aware of this opportunity or may simply not be willing to give it a go.
Your employer will have visibility of your use of the facility. Getting access to wages before payday may be at the employer’s discretion. Some employees might not like the idea of their employers having visibility of this aspect of their finances.
Pros and cons of salary advance services
Pros
Fast access to funds. You could get access to cash quickly, which can help you cover unexpected expenses.
No credit check. You’re not borrowing money, so you don’t need to undergo a credit check.
No repayments. Again, as you’re not borrowing money, there’s nothing to repay.
Cons
Fees apply. You’ll need to pay a fee each time you make an early withdrawal.
No regulation. Salary advance services are not regulated, so you can't take up any issues with the Financial Ombudsman Service, for example.
Could get into greater financial difficulty. If you’re regularly getting an advance on your salary, your salary at the end of each month will be reduced, and you might struggle to meet regular payments.
You don't build your credit. If nothing's reported to credit reference agencies, then you're not building up a credit history by using these services (but it's also not hurting your credit).
Alternatives to salary advance services
What do people do when their employer doesn’t offer earned wage access? Well actually that’s most people… Here are their main options:
A credit card
Credit cards can be ideal for one-off emergency expenses, particularly if you clear the balance each month as you won’t pay interest. Or, if you have a good credit rating, you could apply for a 0% purchase credit card, which will enable you to spread the cost of your spending interest-free for a number of months.
An overdraft
You could ask your bank to arrange an overdraft on your current account if you don’t already have one or extend an existing one. Then, it’s there to dip into from time to time to cover emergency expenses. Just be aware that many overdrafts charge high rates of interest, so you should only use it for the short term.
Borrowing from friends and family
You could also ask friends or family if they could lend you some cash to tide you over. They might even agree not to charge interest on the repayments. However, it’s important to draw up a written agreement to ensure you have a repayment plan in place and to avoid any arguments.
How do you apply for salary advance services?
You can only apply for a salary advance service if your employer has signed up to one. If it has, you can download the relevant provider’s app and see how much cash you can access early.
Bottom line
Earned wage access / Salary advance services can be a quick and easy way of getting access to cash when you need it. However, it’s best to only use these services in an emergency rather than get into the habit of accessing your wages early. Using salary advances regularly could reduce your ability to budget, and you could end up in a worse financial situation. Remember, you’re not getting access to extra cash – you’re just withdrawing your salary early, and you’ll be paying a fee each time for doing so.
For companies, it’s a meaningful, practical perk to offer (and the optics aren’t too bad either).
Frequently asked questions
It’s hard to say. Salary advance services aren’t regulated as they are not loans. That means you can’t complain to the Financial Ombudsman Service if you’re left out of pocket. They also won’t show up on your credit file, which means you could get access to more credit when you can’t actually afford it.
The cost isn’t always transparent (and it would be hard to compare e.g. a flat ESAS fee with, say, a rate of interest on an alternative borrowing option).
Employees could come to depend on these – using them regularly.
If they’re not reported to credit reference agencies, you’re not building your credit score.
No, salary advance services are not yet regulated, which means you’ll have little protection if something goes wrong.
Sources
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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time.
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Chris Lilly is Head of publishing at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more.
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