What is it?
Have you ever thought that every day of the month (except payday) you have a stash of cash that 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 routine that they don’t even think about it anymore. But what if it didn’t have to work that way? What if you could access at least part of your 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.
What’s in it for employees?
Asking for a salary advance is normally way cheaper than the alternative, which is usually an expensive overdraft or payday loan.
Moreover, since you’ve already earned the money, you don’t have to worry about credit checks when you apply, you don’t have to pay the money back and you’re not technically going into debt.
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 have 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, your employer has to register with one of these providers, then you can download an app that tells you how much of your salary you’ve already earned and how much you can borrow. If you then decide to give it ago, 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:
Is this happening across the pond?
Glad you asked. Yes, this kind of employee benefit is also becoming a thing in the US. PayActiv, Even and DailyPay are all companies that operate in a similar way, offering salary advances, employee loans and help to save services in the US.
Well, it’s still early days, but there are a couple of things to be aware of:
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