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Salary finance is a relatively new scheme which permits employees to draw down money from their wages which already exist. This is a direct way in which employers can provide some financial help for their employees. It can be manifested through cash advances, schemes and instances in which staff are permitted to draw down funds prior to their pay date.

Salary finance is an employment benefit which organisations can offer to their staff, also known as EAP (employee assistance programmes). With the employer market becoming more competitive than ever, employers are sourcing new ways to appeal to potential employees alongside maintaining motivation. This now typically extends to offering financial assistance as well as health insurance and vouchers.

How Does it Work?

Salary finance companies provide software which is able to integrate with the organisation itself, providing employees with the opportunity to withdraw money prior to their pay date. For example, if an employee usually receives a wage on the 28th of each month yet requires additional funds on the 14th, salary finance allows them to withdraw 14 days worth of income, meaning they have access to whatever they have earned within that month.

This means that through salary finance, employees have constant access to money in real-time. The concept is currently growing in the UK, US, Australia and South Africa with more companies and startups using salary finance software than ever before.

How Much Does Salary Finance Cost?

Rates of salary finance software can vary. There is usually an onboarding fee for the company, and afterwards companies typically pay £1 per each employee on a monthly basis for access to the software. Employees are then required to pay approximately £1.75 each time they make a withdrawal, which is similar to an ATM fee when withdrawing money abroad.

Who Uses Salary Finance?

Salary finance is used by large scale employers which includes the police force, hospitals, health clubs and supermarket and hospitality chains. Typically, the software is popular for companies with employees who struggle between paydays. For larger groups, salary finance software is a low-cost alternative to loans or credit card overdrafts which typically have very high interest rates.

What is the Difference between Salary Finance and Payday Loans?

Whilst salary finance enables employees to withdraw their own wages between paydays, payday loans allow those to borrow money prior to their payday and repay the loan with interest on their actual payday. Payday loans tend to have the highest APR on the market, in excess of 1000%, although it is often used for just a few weeks or months and then ideally repaid in full.

Payday loans are used by over 3 million people in the UK and many are willing to pay a high interest rate for the convenience and speed of funds. One of the main benefits of salary advance or salary finance is that it is interest-free and the employer pays any transmission fees and it is considered an employee benefit.

John Gauthier of Hoopla explains:

“Salary finance is certainly a cost-effective alternative to high-cost payday loans and it could become the future of cash advances and borrowing short-term.”

“However, employees need to curve how much and how often they drawdown, or they could fall into a similar spiral with payday loans where you are constantly behind on payments and chasing the next cash advance.” 

“Most salary finance schemes allow employees to take up to 40% of their wages each month, but this should be monitored carefully and overdependence should be avoided.”


What is Salary Finance and How Does it Work?
Digital Mag

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