Sometimes, an employee might hit a financial rough patch. Something unexpected might happen, such as a medical emergency, that requires more money than the employee has saved up.
If this happens, the employee might ask you for a salary advance to help them make ends meet. Before you begin giving payroll advances, you need to know what you are required to do and make a payroll advance agreement.
What is a payroll advance?
A salary advance is essentially a loan you can give an employee. The advance comes from wages you will pay the employee in the future.
An employee payroll advance is not like loaning a few dollars to a friend. Your friend might pay you back sometime in the future when they have the funds, but there is no guaranteed time when you’ll get the loaned money back. A salary advance is a real loan with repayment terms.
To make repayments, you deduct wages from the employee’s future wages. You might deduct the full repayment from one paycheck, or you might deduct a smaller amount from several future paychecks.
Your business is not required to give payroll advances to employees. However, if you provide a salary advance to one employee, you should equitably provide advances to other employees as well. You cannot discriminate based on race, religion, disability, etc.
Creating a payroll advance policy
If you permit advances, it is advisable to have a payroll advance policy. Having an established policy helps you fairly decide when to give a payroll advance, how much to advance, and what the repayment terms are. Continue reading “What to do when an employee asks for an advance”