How to Offer Payroll Advances to Your Workers with Deel
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- Payroll advances are cash advances that employees receive from their employers before their set payday.
- Through Deel, you can provide workers with a pay advance with On-Demand Payroll or Deel Advance, depending on whether the worker is an employee or an independent contractor.
- When evaluating potential payroll providers, consider their deadlines for expenses and bonuses, onboarding schedules, off-cycle payment capabilities, and salary advancement options.
Workers’ interest in payroll advances (and other flexible payment methods) is on the rise. Today, almost half of workers say companies that provide on-demand pay are more attractive than those that don’t, and overall interest in earned wage access has increased by 30% in six years.
But one of employers’ greatest challenges with payroll advances is not having an adequate system to regulate and track the flow of funds.
With Deel, you can easily provide employees and independent contractors with payment advances. Deel is an all-in-one HR solution for global teams that enables you to compliantly hire, pay, and manage your international workforce in one platform.
Keep reading to learn what steps you should take before offering pay advances to your workforce and how Deel can help.
What is a payroll advance?
Payroll advances are cash advances that employees receive from their employers earlier than normal. Typically, the advanced funds come out of the employee’s next paycheck.
The employer either includes the advance in an earlier paycheck or gives it to the employee, separate from regular payroll.
Employees may want a payroll advance for numerous reasons—maybe their car broke down and they need to pay the unexpected bill, or they want to book a family vacation without racking up credit card debt or getting involved with a bank lender.
Regardless of the reason, advanced payroll demonstrates you support your employee’s financial well-being and can reduce turnover.
Create a payroll advance policy
Before you begin offering your employees payroll advance, outline the terms and procedures. If you use a third-party payroll processor, they may already have policies and processes for a payroll advance, so you may want to start by reaching out to them.
Most companies create some sort of payroll advance agreement both parties sign and include a line item in any impacted pay stubs. If you have payroll software that already has payroll advance built-in, they’ll likely take care of your documentation.
If you’re a small business owner who manages payroll on your own (or with a small human resources team), you’ll want to create a policy that includes:
- Eligibility requirements
- Request process
- Terms of the advance
- How often employees can request an advance
Looking for flexible global payment methods?
Offering your team multiple payment options attracts a bigger talent pool. See how we solve global payroll for international teams.
Determine eligibility requirements
Begin your policy by stating which employees are eligible to ask for a payroll advance, and when. Typically, employers limit payroll advance to those who:
- Have completed their probation period
- Have not taken a company-sponsored loan
- Are in good standing with the company (not in danger of termination, suspension, etc.)
In some cases, employers require their employees to provide a “legitimate reason” for requesting payroll advance. Some employers limit legitimate circumstances to unexpected expenses or financial emergencies, such as medical bills or car repairs.
If you want to limit payroll advances to certain circumstances, you’ll need to specify what qualifies. You may want to provide examples of non-legitimate expenses: planned vacations, entertainment costs, gambling, or small fines.
You may want to give your employees the freedom to use an advance for any reason, no questions asked. In this case, clarify in your policy that employees can request a payroll advance up to a certain amount whenever they need.
Outline a payroll advance request processes
Your policy should also communicate how employees should request a payroll advance. Be as specific as possible–include links and screenshots to avoid confusion.
Depending on the size of your business, you may be able to rely on email to request advances. If you choose to use this kind of manual process, let employees know what information to include (such as the amount requested and the reason for the request). And if you use automated payroll software, your employees might be able to click a button to request an advance.
At the same time, you’ll want to give your employees a quick rundown of what will happen after they submit their requests. Let them know where their request goes (and who sees it, so they don’t accidentally reveal unwanted information about the reason for the request) and when they can expect a response.
Describe the terms of the advance
In your policy, include terms such as the amount of money an employee can request from their upcoming paycheck as well as the repayment terms or repayment plan. Also, clarify how and where the funds will be delivered, whether in a separate paper check, in their bank account via direct deposit, or even applied to a bill directly.
Clarify whether you will deduct the full amount of the advance from the next paycheck for repayment or the amount will be repaid in multiple installments via payroll deduction over the next few paychecks.
Decide how often employees can request an advance
Be extremely clear with employees about the frequency with which payroll advances are available, whether it’s only once a year or available for each paycheck. Documenting this in your policy (and following said policy) will spare you from too many requests or accusations of favoritism.
Deliver the approved advance
The next step is to provide the employee with the advance. As we mentioned earlier, companies offer advances in many ways: in a separate check, via direct deposit, or in an earlier paycheck.
Through Deel, you can provide workers with a pay advance with our On-Demand Payroll or Deel Advance, depending on whether the worker is an employee or an independent contractor.
Deel’s On-Demand Payroll
On-demand pay, also referred to as earned wage access (EWA), is a versatile payment arrangement granting employees the ability to access a portion of their earned wages before the regular payday.
On-demand pay is available to EOR clients on the Deel platform. This feature enables client companies to conveniently pay employees outside the regular payroll cycle, directly from their Deel dashboard.
With this option, you have the flexibility to make payments for expenses, allowances, and bonuses to your employees, even after the official payroll cut-off date. You can also pay your employees their full salaries up to one month in advance of the regular payday.
How to offer payroll advances to employees using Deel’s On-Demand Payroll
1. Click the On-Demand Payroll button on an employee’s profile page within the Deel platform.
2. Select the Salary Advance option from the pop-up, add your request details, and submit your request.
3. If the EOR team approves the off-cycle payment, they will simultaneously issue an off-cycle invoice to clients. Clients will receive a notification and be able to access it by selecting the ‘Payments’ tab on the home page.
4. Deel will issue off-cycle payslips for the employee. These payslips can be provided instantly to the employee in some countries, but in some countries, the payslip may only be delivered on the next payday cycle.
Ouail El Gharniti, Director of Product (Global Payroll Vertical), Deel
Deel Advance provides eligible independent contractors to receive a short-term cash advance on their earned wages. This advance is not a loan—there is no interest and credit checks are not required.
Eligible independent contractors can request a Deel Advance easily through the Deel dashboard. Here’s how:1. Select ‘Deel Advance’ on the Dashboard.
2. Enter the advance amount you want to request.
3. Agree to the Terms of Service, click ‘Get Deel Advance’, and submit the request.
Deel will then advance the funds to the worker. The funds will be automatically collected from their future client earnings.
Deel contractors can only have one outstanding advance at a time. Once they have repaid the advance, they will have the option to request a new one. Deel advances are always provided in USD and have a maximum of $10,000.
How 1840 & Company used Deel Advance to support their team after Super Typhoon Rai
1840 & Company is a global marketplace for companies to scale and accelerate growth with vetted freelancers and outsourcing services.
Just days before Christmas, Super Typhoon Rai hit Cebu City in the Philippines on December 16, 2021. Rai’s destruction directly impacted an integral portion of 1840 & Company’s workforce, who needed immediate help.
Bryan DiGiorgio, CEO and Founder of 1840 & Company, used Deel to send advanced payments in just a few clicks. Aiding DiGiorgio’s workforce was simple: he calculated the numbers, uploaded them to the Deel platform, and hit the “pay early” button. Now the team could withdraw their funds in their preferred method and currency.
The team instantly received 70% of their pay ten days before their typical payday. Additionally, the company approved and processed emergency funds in just five minutes, allowing near-instant accessibility for those in need, including a woman expecting her fourth child.
“Without Deel, our desire and capability to help would have taken several days or more; a lifetime for those impacted,” said DiGiorgio.
Account for the advance in your books
If you give out payroll advances, you’ll have to include the advance in your bookkeeping to stay on top of your finances. If you forget to include the advance, your balance sheet will have unexpected discrepancies.
Accounting for salary advances best falls under the umbrella of accrued payroll. Accrued payroll is an accounting method that tracks the accumulated money (including pending amounts).
Rather than tracking expenses when they go through, accrued payroll shows the full scope of money flow for each pay period by recording pending expenses such as invoices, paychecks that haven’t been cashed yet, pending credit charges for expense accounts, and—you guessed it—payroll advances.
Accrued payroll is the best way to track advances because it simplifies wage-related expense reporting and prevents accounting errors. You’ll use payroll journal entries to document approved cash advances and subsequent paycheck totals.
Frequently asked questions about payroll advances
Learn more about payroll advances here.
What’s the difference between a payday advance vs. a loan?
People often use the terms “payroll advances” and “employee loans” interchangeably, but they’re very different.
A payroll advance, also called a payday advance, offers employees money they would already get in a future paycheck. Advances are a non-mandatory employee benefit provided by the employer and usually involve no extra fees or interest.
A payday loan provides people with a small, short-term loan at a high interest rate. Usually, third-party payday lenders offer these personal loans at higher interest rates. Borrowers must repay most payday loans within 14-30 business days or pay additional fines on top of the interest. Payday loans require good credit and can negatively affect borrowers’ credit scores.
Can you give an independent contractor a paycheck advance?
Contractors receive payment via invoices, not employee payroll, so they don’t technically receive a payroll advance. As mentioned earlier, you can use Deel Advance to provide short-term cash advances, give a contractor a bonus, or renegotiate the independent contractor agreement to provide higher payment if you love their work.
Marieke Sneep, Head of People, Solar Monkey
Offer easy payroll advances to your global team with Deel
If you have international workers, you probably already know how complex global payroll is. But making global payments shouldn’t stop you from having a global team.
When evaluating potential on-demand payroll providers, consider their deadlines for expenses and bonuses, onboarding schedules, off-cycle payment capabilities, and salary advancement options. Here’s how Deel’s On-Demand Payroll services compare to competitors.
Employees’ expense adjustments must be made 25 days before payroll. If not, they’re paid up to 45 days later
Add employee expense adjustments to be paid out immediately, at any time
Bonuses and commissions must be submitted up to 25 days before payroll. If not, they’re paid up to 45 days later
Add any bonuses or commissions to be paid out at any time
Onboarding must take place up to 25 days before payroll. Otherwise, the onboarding process is delayed to the following month
Onboard new hires at any time
Off-cycle payroll can only be run at the end of the month
Run payroll at any time in just a few clicks
Salaries can’t be paid early
Pay employee salaries up to a month early
With Deel, you can fund payroll with just a click and automatically calculate payroll taxes without lifting a finger. Our multiple currency options and various withdrawal methods make it even easier for your team to get paid on time, every time.
Learn more about how you can streamline international payments with Deel’s Global Payroll. To speak with an expert and preview the platform, book a 30-minute product demo today.