Money Wellness warns salary advance schemes are masking a debt crisis

Manchester-based Money Wellness, an organisation offering free debt and wellbeing advice, is warning that the explosion in salary advance schemes, allowing employees to access their salaries before payday, is camouflaging a spiralling debt crisis.

Salary advance schemes, also known as earned wage access, salary loans or payroll advances, are financial arrangements offered as an employee benefit and administered by a third party, that allow staff to access some or all their wages as they earn them, without having to wait until payday. 

They are not classed as credit, such as a loan, because payment is taken directly from their salary. They are therefore not credit checked nor regulated.

Instead, every time a person accesses their salary in advance, they must make a one-off payment – typically £1-£2 per withdrawal – to the provider of the scheme.

Most providers lend between 50-60% of a person’s salary.

Ian Somerset, chief executive of Money Wellness, said: “With bills and the cost of living soaring, thousands of people are finding themselves short of money at the end of the month.

“No matter how well you budget, surprise expenses always crop up. Salary advance schemes are a great way to cover unexpected expenses or the cost of an emergency. They’re also a good alternative to taking out an expensive payday loan or having to borrow from friends and family.

“However, salary advance schemes can also mask a far greater debt problem, especially if someone is using them constantly to make ends meet. Regularly dipping into your salary before payday probably means you have money problems and having to rely on salary advance schemes is merely papering over the cracks. It doesn’t address the core problem.

“They can also lead to people taking longer to access independent and free debt advice and can result in spiralling debt. Ultimately, they can also have a detrimental impact on a person’s mental health as they’re constantly chasing their tail, worrying about how they’re going to cover outgoings for a far longer period than is necessary.”

Money Wellness is also calling for employers to recognise the important role they play in supporting staff who are struggling with problem debt.

“By providing salary advance schemes, employers are taking on additional financial responsibility for their employees. Employers should be working with staff who are struggling to access the free debt support that’s available. The responsibility really lies with them in recognising those who are using this product too frequently. The reality is they can cause serious problems if someone can’t repay their advances.”