With many people facing financial difficulties due to the coronavirus pandemic and lockdown, some could be tempted to turn to a growing breed of providers who offer the chance to access pay early.
Salary advance schemes let users take a portion of their wages before their payday to help them if they are caught short – but it often comes at a cost to either a worker or their employer.
The cost and the risk of being short in future because you spent money you need early is a downside.
However, this is very different to payday lending with its sky-high interest rates, however, salary advance instead aims to smooth earnings, can let people simulate being paid weekly instead of monthly, and allow them to access emergency cash.
Salary advance schemes allow employees to access their wages early if in need of money
All apps offer access to a proportion of already-earned pay with many not allowing customers to take more than 50 per cent of their wage – and sometimes as little as 25 per cent.
Providers have not been cast in the best light of late after ex-PM David Cameron was called out for lobbying the health service to use a Greensill app called Earnd that allows NHS employees to draw their salary earned but not yet paid.
Just 450 health service personnel from three different trusts began using the app, before the firm went bust and where the app stands now is unclear.
However, there are a number of companies offering a similar service with some claiming to be cost free with thousands already signed up.
This is Money takes a look at some of the main competitors in the salary advance market and reveals how much it could cost you.
Launching this week, Borofree is a salary advance solution that the firm claims ‘is cost-free for both the employer and the employees’. It doesn’t involve cash but gift cards to spend at certain retailers.
A spokesperson for Borofree said: ‘We know that unexpected moments occur in life and sometimes some additional support is needed.
‘So, whether it’s to help with those everyday essentials, budgeting food shopping, Christmas or birthday presents or for those unexpected emergencies, the user can use their salary advance to give them a helping hand.’
The firm said it believes the service can help staff retention as employees increase staff wellbeing and mental health.
How much can employees get in advance: Rather than giving people direct access to cash, Borofree allows them to use up to £300 of their salary before payday to buy the products and services they need with gift cards without incurring any fees or interest.
Those signed up will have access to over 50 high street stores and online retailers including John Lewis, ASDA, B&Q and National Express where they can spend the vouchers.
Repayment for the amount borrowed will automatically be taken on payday.
How it makes money: The service makes money through its brand partners where it earns a small commission.
Many of the advance salary apps believe it can help financial health to get wages earlier
Hastee was launched in August 2017 and says it was the first Earnings on Demand platform to launch in the UK.
The company believes the traditional payroll cycle is no longer meeting the changing demands of today’s workforce and says employees need their earnings on demand to meet unexpected challenges.
It said the increased liquidity from its app can help workers avoid the use of other high-cost credit options and means they can more flexibly access their own money on demand without accruing debt.
The app is being used by over 300,000 employees from multiple organisations across Europe including NHS South London and Maudsley, Barcelo Hotel Group, Mitchells & Butlers and London City Airport.
Alongside the Earnings on Demand capability, Hastee also offers employers the chance to provide financial management tools to their workforce, such as savings, cashback, rewards and budgeting guides.
How much can employees get in advance: It offers customers up to 50 per cent of their salary in advance in cash.
How it makes money: Workers receive their first withdrawal, up to £100, free of fees. Thereafter, it charges a 2.5 per cent transaction fee – but never charges any interest.
In most cases, the fee is paid by the employee when they withdraw their earnings, but employers have the option to cover this cost for their staff.
Hastee said this has no impact on company cash flow as it funds all the withdrawals, with the company paying it back on their normal payday.
Another of the first early wage access firms, Wagestream launched in the UK three years ago.
So far, more than 200 employers offer Wagestream’s service to their employees across industries like hospitality, retail, security and healthcare.
It added around half a million employees have the option of using the app through their employer but adoption rates vary widely across different industries.
Some 20 per cent of enrolled users are choosing to use the Earned Wage Access feature, less than once per week, allowing them to roughly replicate the cadence of weekly pay.
It added within a year of making their first Earned Wage Access transfer, employees are, on average, transferring lower amounts, less often, and at later stages in the pay cycle than they were originally.
Like other apps, it offers other features that allow employees to track earnings in real-time, set up reminders for recurring bills and build savings.
It said the end goal of its service is less reliance on predatory forms of short-term credit, more savings, better financial literacy and better overall financial resilience.
How much can employees get in advance: It allows employees to borrow up to 50 per cent of their wages in advance.
How it makes money: Employers pay a software fee to offer Wagestream as a benefit which sometimes entails an ‘implementation’ fee as well.
Employers can then choose to subsidise the cost of transaction fees, for the Earned Wage Access feature, as it costs the firm to process these.
If not, employees then typically have free access to ‘Track’, ‘Save’ and ‘Learn’, and pay £1.75 each time to access their earned wages if they use the Earned Wage Access feature.
Usage and fees are capped, by controls put in place and monitored by each employer such as caps to prevent the employee from accessing more than a fixed portion of their earned wages, in-app notification to ensure transparency of usage and a maximum cap on fees.
Most of the apps charge a fee to the employee or employer to access their salaries early
So far, the Level app, which was launched in 2020, has been rolled out to tens of thousands of employees.
Capita is the first business to deploy the Level app to its workforce, which it says makes it the largest rollout of this kind of technology ever in the UK.
Steve Holliday, CEO of Level, said: ‘The app is designed to encourage users to develop good habits and empower people to meet their personal finance goals and aspirations – particularly around savings and budgeting.’
Asked whether such an app could lead to a user getting in debt, he said the trouble with salary advance schemes arise when a person becomes reliant on them month in, month out – but it believes this is at odds with a responsible approach to implementation.
The app also offers a suite of services that include budgeting tools, financial education and, above all, savings.
How much can employees get in advance: The maximum a person can take out each month is £500 and the maximum number of advances they can take is three (checking if this is year/ever)
How it makes money: Level said its principal offering is to charge the employer for each employee that uses its product and to charge the employee a flat fee for each monthly advance.
Its website states there is an admin fee of £2 per advance.
The average amount taken out by each employee depends on the salary and the hours worked by the individual employee.
However, for a full-time salaried worker who earns more than the Real Living Wage, the average monthly advance is £210.
There was an industry review into the schemes, looking at whether they are considered safe
Is salary advance a help or hindrance?
The recent publication of the Woolard Review, a review of change and innovation in the unsecured credit market by the Financial Conduct Authority (FCA), examined the advanced salary practice.
As part of the review, the FCA said employees can use such schemes to ‘smooth’ their income throughout the month to better manage regular monthly spending or deal with unexpected or emergency expenditure.
It found that, depending on how they are used, they can be a low-cost, easy-to-access alternative for people who may not be able to access mainstream credit.
However, it added the services should be implemented responsibly and with accompanying tools which encourage good habits to improve savings and budgeting.
Debt charity, Stepchange, agreed with the findings of the review.
Adam Butler, Public Policy Manager at Stepchange, said: ‘Last year, 52 per cent of the people coming to StepChange or their partners were in some form of employment so it’s evident that people are still struggling with their debts while in work.
‘That is why it’s so important that employers examine how they can support the financial wellbeing of their employees.
Well-designed salary advance schemes can help reduce demand for high cost credit but any form of borrowing needs to be considered carefully
Adam Butler, Stepchange
‘Well-designed salary advance schemes can help reduce demand for high cost credit but any form of borrowing needs to be considered carefully to ensure that it is affordable and does not mask or cause a bigger problem.
‘For employers, one of the questions might be whether demand for borrowing indicates an employee needs more tailored support.
‘Employers can help prevent borrowing to make ends meet by supporting employees to build an emergency savings pot and build financial resilience, including signposting to free debt advice.’
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