Many employees are still turning to their employer for short-term loans or salary advances through existing payroll processes, research shows.
The survey from Howden Employee Benefits & Wellbeing found more than six in 10 employers provide salary advances or loans to workers.
Steve Herbert, head of benefits strategy at Howden Employee Benefits & Wellbeing, said given that we are now in the 2020s – and that most salary payments are made via bank transfers rather than in cash – it is astonishing that so many employers are still offering access to loans or salary advances.
He warned that loans and salary advances impact on cash-flow, increase the risk of default and could result in favouritism.
“Finally – and certainly not least – without an understanding of the underlying issues and the employee’s ability to repay, they might actually be making things much worse for their employee and their family later in the year,” he added.
The survey of more than 160 employers found less than 1% are currently offering access to finance through a recognised workplace finance provider.
Herbert said workplace finance is a more constructive and sensible approach because providers can offer loans based on more than credit score and affordability assessments alone.
“Criteria such as service history, and the ability for repayments to be made via payroll deductions, make a significant difference to many lending decisions,” he explained. “The result is often that finance can be offered where it might otherwise have been declined, and at affordable rates that may not be available from other high street or internet lenders.”
Using a workplace finance provider also avoids any precedent risk for the employer, and affordability will also be assessed by the provider.
“Should the risk of further lending be too high for the provider, then signposting the employee towards appropriate debt management and financial education support could help them to regain control of their finances,” said Herbert.
The research also found nine in 10 organisations didn’t offer any access to saving options other than a pension scheme.