This podcast captures the views of some financial services industry commentators on the merits and drawbacks of ESAS (Employee Salary Advance Schemes).
Guests on this podcast are:
- Matt Bland, CEO Co-op Credit Union, UK
- Emily Trant, head of Impact & Inclusion, Wagestream
- Lindsay Melvin, CEO Flexiwage
- Erik Porter, Wellbeing expert
How a Employee Salary Advance Scheme works:
Specialist scheme operators, which are usually unregulated businesses, often provide the product as part of a 'wellbeing package' to help employees with financial management. Some offer employees an app based platform which sits between the employer’s payroll operations and the employee’s bank account. The employee can then a draw down usually up to half of their accrued or earned wages before their next pay day. The scheme operators usually charge the employee a fee for each drawdown. The employer will then pay the balance of the salary (i.e. net of the advanced payments and the fees for the service) on the next payday. Employees can make multiple drawdowns during each pay cycle and can repeat this again in subsequent periods.
For many employees who do not have major debt problems, an ESAS (Employee Salary Advance Scheme) may be helpful where for a variety of reasons they need to quickly access some of their salary early.
However, for employees with limited options, there are potential risks. Set out below are ways in which employers and scheme operators could mitigate some of these risks.
- Scheme operators could highlight, on the employee section of their websites or where they provide an app, that where the employee has underlying financial problems that a salary advance may not in itself be sufficient to resolve such issues and suggest that they seek financial help from a debt advice charity.
- Employers, when introducing their staff to such schemes, could similarly highlight the limitations of a salary advance and suggest that if the employee needs debt help or access to more holistic financial advice, they could signpost them to the Money Advice Service website. They could also provide contact details of debt charities, such as Citizens Advice and Stepchange.
- Bringing the above to the attention of employees may be particularly important where the employer and scheme operator become aware that individual employees are drawing down salary under the scheme on a frequent basis.
- Employees could be provided with periodic notifications where there is an accumulation of transaction charges.
- Similarly, scheme providers could develop systems that monitors the pattern of usage of individual employees. Where there is a pattern of repeat use which may be a sign of financial difficulties, then this could trigger alerts that might provide guidance and signpost the employee to organisations that provide free debt advice.
The FSA says: The risks for employees and employers are:
While the product has benefits, it is important that employees and employers are aware that there may be some risks in using these schemes.
- Lack of credit regulation. The regulatory and statutory rights and protections, from which borrowers under consumer credit agreements benefit, do not apply, as ESAS usually operate outside of credit regulation. For example, ESAS providers have no obligation to check affordability. Therefore, employees will need to satisfy themselves that they will have enough money on payday to pay other expenses they may incur at that time (for example their mortgage or rent payments), when they receive the balance of their salary. The high-cost short-term credit (HCSTC) pric
Talking Credit Unions with Chris Smith is a regular podcast dedicated to informing credit union practitioners, leaders and opinion formers on variety of industry topics. To contact Chris Smith, smithowls@gmail.com