Employers also feel the strain. A workforce that’s stressed about money experiences
higher rates of absenteeism and dissatisfaction, reducing productivity and retention. One way employers can help address this instability is by implementing a payroll advance program. A payroll or salary advance plan is a
financial wellness benefit that provides employees early access to wages, which are then deducted from their next paycheck.
Here’s how paycheck advances support employee financial well-being and how HR and payroll can determine the right approach for offering this benefit.
What is a pay advance, and how does it work?
Alongside signing bonuses and other incentives, payroll advance programs are becoming a popular tool to attract new talent. These programs allow employees to access a portion of their earned wages before their scheduled payday. The available amount typically depends on the employee’s salary or hourly earnings, as well as any limits set by the employer. Repayment can be made in full or through installments, which are deducted directly from future paychecks.
The structure of a payroll advance depends on the company’s policy. Generally, the employer and employee agree on the advance amount and repayment terms, then document the arrangement in a signed agreement. Once finalized, the funds are released, and the payroll team deducts the repayment according to the agreed schedule during the next pay cycle.
The demand for payroll advances is growing. Reports from the Consumer Financial Protection Bureau found that the number of employees using these services grew
almost 50% from 2021 to 2022, from 1.8 million to 2.8 million users.
Opportunities and challenges of payroll advances
Payroll advances can be a meaningful part of a total rewards strategy, but like any benefit they come with trade-offs. Employers should consider these factors before implementing a payroll advance program.
Opportunities
More financial flexibility. Employees can cover urgent expenses or everyday essentials without turning to high-interest payday loans or credit cards.
Improved morale and productivity. Chronic financial stress can negatively impact
employee productivity. Offering payroll advances to help employees when they need it most can lead to increased focus, satisfaction, and productivity.
Attractive more talent. Payroll advances are a
valuable benefit that helps companies stand out in a competitive labor market, especially among candidates seeking greater financial flexibility.
Enhanced wellness. Giving employees more flexibility to manage their finances and navigate unexpected expenses may help reduce financial strain and contribute to a more positive employee experience.
Challenges
Financial limitations. A high volume of paycheck advance requests can create liquidity challenges for employers, particularly smaller businesses with limited financial reserves.
Resource constraints. Managing pay advances can be time-consuming and complicated, especially without a streamlined system in place.
Dependency challenges. Without complementary financial planning resources, some employees may use advances more frequently, highlighting an opportunity to pair this benefit with broader financial wellness support.
Repayment issues. If someone quits while repaying employee loans through payroll, it may be challenging to recoup the outstanding funds.
How to create a payroll advance policy to support your team
To ensure compliance and consistency, payroll advances should be administered through a standardized, legally vetted policy framework. A well-crafted policy not only supports your team but also protects your organization from legal and financial risk. Here are some key steps to follow:
1. Establish a clear process
Outline a step-by-step procedure for employees to request a payroll advance. The policy should explain how requests are submitted and approved, how repayment is handled via payroll deductions, and whether any fees or interest apply. It should also clarify expectations around repayment timelines and the handling of missed or late payments.
2. Determine eligibility
Clearly identify which employees are eligible for payroll advances. Common criteria include:
Employment status (e.g. full-time vs part-time)
Length of employment )e.g. 90 days or more)
Good standing (e.g. not under disciplinary review)
3. Set advance limits
Determine maximum advance amounts based on factors such as employee earnings, company cash flow, and administrative capacity. This helps ensure the program is sustainable and manageable for both the organization and the employee.
4. Limit frequency of use
To promote responsible use, many employers limit how often advances can be requested—such as once per quarter or a set number of times per year. Defining these limits upfront helps avoid overuse and encourages thoughtful participation.
5. Communicate the benefit clearly
Ensure employees are aware of the payroll advance option and understand how it works. Include clear information in onboarding materials, employee handbooks, internal FAQs, and company intranets to promote awareness and accessibility.
6. Standardize documentation
Use a consistent system to track payroll advance requests, including the employee’s name, request date, approved amount, repayment terms, and current repayment status. Proper documentation ensures transparency, supports compliance, and enables accurate reporting and auditing.
Tax and legal considerations on payroll advances
Before implementing a payroll advance program, it’s important for both employers and employees to understand the legal and tax implications of providing or receiving an advance on a paycheck from an employer.
Legal considerations
Payroll advance programs are governed by federal and state labor laws.
Federal
Under the Fair Labor Standards Act (FLSA), employers must ensure that any deductions for payroll advance repayment do not reduce an employee’s take-home pay below the federal minimum wage.
For example, if an employee works 40 hours per week at the
federal minimum wage of $7.25/hour, their gross biweekly pay would be $580. Any payroll deduction for repayment must not reduce their paycheck below this amount. If the employee earns $10/hour ($800 biweekly), the maximum allowable repayment in one
pay period would be $220.
State
Many states require that payroll advance arrangements be documented in writing and signed by the employee, explicitly authorizing the employer to deduct repayments from future paychecks. Even in states where this is not legally required, having a signed agreement is a good practice to protect both parties.
As payroll advances grow in popularity, regulatory oversight is increasing. Employers should stay informed about evolving federal and state labor laws and consult legal counsel to ensure their policies remain compliant.
Tax implications
From a tax perspective, payroll advances are treated as earned wages rather than loans. However, the timing of tax deductions is key. Employers do not withhold taxes at the time the advance is issued. Instead, taxes are deducted from the employee’s regular paycheck during the pay period in which repayment begins. The advance repayment is taken out after taxes have been applied.
Many payroll software systems can automate these processes, but if the software doesn’t support payroll advances, finance teams or bookkeepers must manually record the repayments as post-tax deductions. Regardless of how the advance and repayment are tracked, the full amount of wages earned, including any advances, is reported on the employee’s W-2 form at the end of the year.
How to offer payroll advances
Once an employer has addressed the relevant legal and tax considerations for offering payroll advances, the next step is to define a clear process for employee requests and internal approvals. Here’s a typical workflow:
1. Receive a written request
Employees should submit a formal written paycheck advance request.
2. Review eligibility
Payroll reviews the request against established eligibility criteria—such as length of employment, frequency of past advances, and current financial standing—to determine whether the employee qualifies.
3. Sign the agreement
If the employee qualifies, both parties sign an agreement that clearly outlines the:
4. Issue the advance
The payroll team processes the advance, ensuring the transaction is recorded in the employee’s wage statement for transparency and audit compliance.
5. Document the transaction
If payroll software doesn’t support advances, businesses should manually document the payment and repayment schedule in the company's financial records.
Alternatives to payroll advances
Payroll advances can be helpful, but they may not be the right solution for every organization — or every employee. Fortunately, there are alternatives for employees that offer financial flexibility.
On-demand pay
On-demand pay (also known as Earned Wage Access) programs, like EarnIn’s
Cash Out feature, allow employees to access a portion of their
earned wages when needed without waiting until payday. With EarnIn, they can access up to $150 per day, with a max of $750 per pay period,
the same day they work — starting at just $3.99 per transfer.
Alternatively, employees can also choose to get their money in 1-3 business days at no cost. Tips are always optional.
EarnIn requires no credit checks, charges no interest, and involves no system integration or cost to the employer, making it a low-lift benefit with high impact.
Financial wellness programs
Programs such as financial coaching, student loan repayment support, budgeting tools, and personalized financial planning platforms can provide employees with resources to better manage their finances and make more informed decisions. By offering access to these types of tools, employers can help support financial confidence and encourage healthier money habits over time.
Shorter pay cycles
For many employees, especially hourly, frontline, or lower-income workers, waiting two weeks between paychecks can create financial strain, particularly when unexpected expenses arise. Transitioning from a biweekly to a
weekly pay cycle can help ease this burden by providing more immediate access to earned wages. This shorter pay cadence may help employees better manage cash flow, avoid reliance on high-interest credit, and reduce the stress of living paycheck to paycheck. While this approach may require operational adjustments, it can be a meaningful step toward supporting financial stability and employee well-being.
Emergency Assistance Funds
Some employers establish internal Emergency Assistance Funds to support employees experiencing unexpected financial hardships, such as medical emergencies, housing crises, or natural disasters. These funds are typically offered as one-time grants or interest-free loans and are reviewed on a case-by-case basis to ensure fair and thoughtful distribution. While not a substitute for long-term financial benefits, these programs can provide a safety net during moments of crisis and demonstrate a company’s commitment to employee well-being.
EarnIn: A better alternative to employee advances
While payroll advances and other short-term financial programs can offer employees temporary relief, they often require manual processing and may not scale easily across a growing workforce. In today’s environment, employees are increasingly looking for ongoing access to financial resources that are flexible, secure, and easy to use.
EarnIn offers a modern alternative that is simple to implement and easy for employees to use. With EarnIn, employees can access up to $150 per day, with a maximum of $750 per pay period, in minutes starting at just $3.99 per transfer. They also have the option to receive funds within one to three business days at no cost. Tips are optional.
EarnIn does not require credit checks, interest charges, system integration, or employer funding. Because EarnIn funds all disbursements directly, there is no impact on your payroll process or company cash flow. Implementation is simple and seamless, with no changes needed to your existing payroll system.
In addition to on-demand pay, EarnIn provides employees with tools to support long-term financial health. Features like
Tip Yourself make it easy to save automatically with every paycheck, while
Balance Shield can help protect against overdraft fees. For organizations seeking a scalable, cost-free way to support employee financial wellness, EarnIn offers a comprehensive solution that requires minimal effort to deploy and delivers meaningful impact.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
This Blog was sponsored by EarnIn. While the author received compensation, the information shared is grounded in independent research and intended to provide helpful and accurate guidance to readers.
EarnIn is a financial technology company not a bank. Banking Services are provided by Evolve Bank & Trust or Lead Bank, both member FDIC. The FDIC provides deposit insurance to protect your money in the event of a bank failure. More details about deposit insurance
here.
A pay period is the time between your paychecks, such as weekly, biweekly, or monthly. EarnIn determines your daily and pay period limits (“Daily Max” and “Pay Period Max”) based on your income and financial risk factors as outlined in the
Cash Out Maxes section of our
Cash Out User Agreement. EarnIn reserves the right to adjust the Daily Max and Pay Period Max at its discretion. Your actual Daily Max will be displayed in your EarnIn account before each Cash Out.
EarnIn does not charge interest on Cash Outs or mandatory fees for standard transfers, which usually take 1–2 business days. For faster transfers, you can choose the Lightning Speed option and pay a fee to receive funds within 30 minutes. Lightning Speed may not be available at all times and/or to all customers. Restrictions and terms apply; see the
Lightning Speed Fee Table and
Cash Out User Agreement for details and eligibility requirements. Tips are optional and do not affect the quality or availability of services.
Lightning Speed is an optional service that allows you to expedite the transfer of funds for a fee. Depending on the product, the fee may be charged by EarnIn or its banking partner. Lightning Speed may not be available in all states and/or to all customers. Restrictions and terms apply. See the
Lightning Speed Fee Table for details.
Tips go to EarnIn and help us provide tools such as Credit Monitoring for free and keep Lightning Speed fees low. Your service quality and availability aren’t affected by whether you tip or not.
Tip Yourself Account funds and Tip Jars are held with Evolve Bank & Trust, member FDIC and FDIC insured up to $250,000. Tip Yourself is a 0% Annual Percentage Yield and $0 monthly fee service deposit account. For more information/details visit
Evolve Bank & Trust Customer Account TermsThe FDIC provides deposit insurance to protect your money in the event of a bank failure. More details about deposit insurance
here.
Balance Shield provides free alerts when your bank account balance drops below the threshold you set in your EarnIn account. You can also enable automatic transfers ($100/day -subject to your available earnings- with a limit of $750/pay period), if your bank account balance falls below your set threshold. If your available earnings are insufficient to transfer the $100, the transfer will not be completed.You choose the speed of these automatic transfers. Standard speed is available at no cost and the transfer typically takes 1-2 business days. Lightning Speed is available for a fee [see
Lightning Speed Fee Table] and the transfer typically takes less than 30 minutes. You will also have the option to set a tip for automatic transfers. Tips are optional and can be $0; however, if you choose to set a tip, it will be applied to each Balance Shield transfer. Whether you tip, how much, and how often you tip does not impact the quality and availability of services. You can cancel the alerts and/or transfers at any time in your EarnIn account settings. See the
Cash Out User Agreement for more details. While Balance Shield can help you avoid overdrafts, it does not guarantee protection from third-party fees, and its effectiveness depends on your usage and bank activity.
