The salary is the main counterpart of the employment relationship, and constitutes the remuneration that an employee receives each month in exchange for his or her work.
Paying a salary is a legal obligation. In most companies, salaries are paid from payroll at the end of each month. Even so, countless unforeseen events can arise that cause employees to need to advance payment of their salary: this is a payroll advance.
What is a salary advance? What type of salary advances can be requested? Who can request a salary advance? How is it reflected in the payroll? In this post we explain to employers and HR departments all the details about the payroll advance.
Table of Contents
What is a Salary advance?
The salary advance, also known as payroll advance, is a salary payment made to the employee in which the company advances part of their expected monthly salary. Payroll advance is not a voluntary decision by the company, it is a right of all employees. The advance salary payment or payroll advance is deducted from the net or liquid salary of the employee.
Many collective agreements specify the maximum percentage amount that the employee can request when requesting the advance payment. Most limit the amount of the advance to 90% of the salary the employee receives for the work already performed. However, in some companies you can also request payroll advances for future work.
The request for a payroll advance must be made by the employee to his or her managers or to the Human Resources department.
Eligibility for salary advance
In India an employee must meet few criteria to ask for a salary advance (most of the companies follow them). Here are the criteria’s:
- Successfully concluded the probationary period
- Currently not under any company-sponsored loans
- Have not taken a payroll advance in the past six months
Salary advance policy for employees: Ensuring clarity and fairness
Here is the salary advance policy generally followed in Indian companies:
- Eligibility: Clearly defines criteria for advance requests, such as tenure, job position, or past financial behavior within the company.
- Application Process: Outlines formal steps for employees to request an advance, ensuring a systematic and documented application process.
- Advance Amount: Specifies minimum and maximum amounts that can be advanced, whether fixed or a percentage of the monthly salary.
- Repayment: Details how advanced amounts will be deducted – lump sum or installment – from future salaries.
- Guidelines: Offers clarity on valid reasons for salary advances, promoting responsible use for genuine emergencies rather than frivolous activities.
- Governance: Clarifies HR and finance departments’ roles in processing, approving, and monitoring advances.
- Exceptions: Highlights special circumstances where standard policies might not apply.
- Additional Factors: Addresses consequences of delayed repayment, tax implications, or associated interest/fees.
You can download payroll or salary advance policy template from here.
Implementing a payroll advance policy ensures transparency and fairness, minimizing conflicts or misunderstandings in handling advance pay requests.
If you find all the policy framework difficult to manage, you can read how to manage payroll outsourcing for a hassle-free Third Party Payroll Managing service.
Advantages of salary advance
Having a payroll advance is an additional company service that the worker will value greatly. Among its advantages it is worth highlighting:
- Reduction of financial stress: the fact of being able to receive an advance on their salary when needed allows the employee to have peace of mind in the event of any unforeseen expenses.
- Increased productivity and improved work environment: with the social benefits offered by the company, employees will be able to concentrate on their work if they encounter an unexpected problem. For example, know the level of well-being of the team through a work environment survey.
- Employee loyalty: offering some benefits such as payroll advance or compensation in kind (company car, housing, etc.) will allow the employer to perceive the company as concerned about the well-being and productivity of its employees.
- Talent attraction: in addition to maintaining the talent you already have, you will be able to attract new employees.
- Improving employer branding: transmitting enhanced brand value, which will allow the company to differentiate itself from the competition.
Difference between salary advance and salary advance loan
Before making a salary advance, it is important that you know the difference between an advance and a loan. In the case of payroll advances, the employee requests amounts already earned in his favor that will be deducted from his payroll at the end of the month.
If it is a loan, the repayment period may be longer. For example, the employee asks to be advanced 15 days of the month that he has worked, but requests to make the return in three months or when he receives the extra festive or such pay.
Frequently asked questions about salary advance
If an employee asks you for a salary advance, you may have questions. We have answered the most common questions:
Does salary advance have interest?
No, the salary advance is an amount already earned by the employee, so the company cannot charge interest.
What happens if the employee asks for an advance of extra pay?
The company is not obliged to give an advance of the extra pay already accrued to the employee, unless the collective agreement regulates this obligation.
How is the salary advance reflected in the payroll?
The amount of salary that is advanced to the employee will be deducted from his or her payroll, so said advance will be included in the “deductions” section with the concept of “Advanced amount.”
Should the advance payment request be made in writing?
Yes, the request must be made in writing so that the date, the applicant and the amount required are recorded. The data to include in the writing are the following:
· Data of the company to which the request is made
· Date and place of the request
· Data of the applicant worker (full name, Employment id, department etc.)
· Express request for the payroll advance and the amount
Who can request the advance payment?
Salary advance in India can be requested by the employee directly or by their legal representatives with their authorization. The most common thing is that it is done directly by writing to the company’s human resources department.
What period does the company have to pay a payroll advance?
The law does not regulate a specific period, but payment must be quick so that said advance does not lose its nature (In India it can vary from three months to a year).
Are there other options regarding the payroll advance?
Yes, flexible payment terms can be established between the company and employees regarding payroll. For example, it should be paid every month. In this way, employees will be better prepared for unforeseen events.
Can I ask for an advance at work?
Yes, you can. You can approach your employer or HR department formally, explaining the reason for the request and proposing a repayment plan if applicable. It’s advisable to adhere to the company’s policies and maintain professionalism in your communication.
How to ask for a salary advance?
Begin by expressing your need for a salary advance due to unforeseen circumstances, providing a concise explanation for the request or formally submit salary advance application. Ensure you understand and adhere to the company’s policies regarding salary advances. Following the discussion, the HR department or your supervisor will guide you through the necessary paperwork and formalities to process the advance, and if approved, the agreed-upon amount may be disbursed through payroll.
Knowing how to act to help your employees when they face financial problems is essential to generating trust and loyalty. It’s not just about advancing them money, but about learning to manage their finances with your help.
Final Words: Managing salary advance efficiently
By approaching financial resource wisely and responsibly, individuals can leverage it to navigate unexpected challenges and foster a robust financial well-being. Keep it simple, stay informed, and empower yourself to make effective financial decisions.
If you are looking for third party payroll service fully managed for you, PITCS is the best you can find within reasonable budget.