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This question is about employer.
What is a pay advance?
A pay advance is when a company, either directly or through a third party, allows you to obtain part of your upcoming paycheck. Many companies now offer payroll advance services to help employees bridge the financial gap between paychecks and avoid higher-cost options. But they're not necessarily always in your best interest.
An employer-led payroll advance is when a company, either directly or through a third party, allows you to obtain part of your upcoming paycheck days or even a week or so ahead of time. There are also third-party services such as a payday loan service. These types of short-term loans provide immediate cash, but can be very expensive for borrowers.
With an employer-led payroll advance system, employers partner with a third party - often a fintech - to offer payroll advance as a benefit to employees, giving them a chance to borrow against the next paycheck. Often, there are limits on how much an employee can borrow, such as no more than 50% of an upcoming paycheck.
In recent years, several businesses, including Walmart and McDonald's, have signed partnerships with companies to provide payroll advance services to their workforce. However, depending on the employer, employees could be charged a small, flat fee for each pay period in which they use the service, which can add up quickly.
Not all employer-led payroll advance arrangements are bad, however, There are some companies that include savings options, online bill paying, and financial counseling. Not to mention that employee-led payroll advance fees are usually lower than a payday loan because it's a lower risk for the payroll advance partner company.
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