Do you operate salary advance schemes for your employees either directly or through an Earned Wage Access provider?
As part of the HMRC July 2024 Employer Bulletin, they have published an article that relates to salary advance arrangements between an employer and an employee and revised RTI FPS obligations.
These schemes (sometimes also referred to as Early Wage Access schemes) allow employees access to what is claimed to be some of their earned salary before the normal pay day. This advance is often provided through a short term loan advance with recovery when wages are normally due.
Often Employers make arrangements through a third party EWA scheme. These arrangements are commonly known as Salary Advance Schemes.
In Employer Bulletin 100 edition in February 2023, HMRC summarised the legislative position at that time and its intention to amend secondary legislation so that salary advances would have to be reported with the remainder of the employee’s salary on or before the employee’s contractual pay day.
HMRC confirm that is has now amended the legislation for employers whose employees receive advances of salary either directly from the employer or through a third party. Where the amended legislation applies, employers must not report a salary advance to HMRC’s Real Time Information (RTI) system until the payment of the remainder of the salary instalment. This means HMRC will now only expect one RTI report for each relevant pay period.
These amendments apply when certain conditions relating to the salary advance are met:
- the employee’s salary is ordinarily paid at regular intervals of between one week and one month and the employer pays part of the salary in advance
- the salary advance reasonably represents work undertaken or obligations performed by the employee under their contract with the employer and no other relevant payment for this work has been made
- the employer makes a regular relevant payment to the employee at the regular payday after the advance payment is made, they should reduce the regular relevant payment by the amount of the salary advance
This revised legislation took effect from 6th April 2024.
The reporting obligations remain with the employer where a third-party scheme provider is acting on the employer’s behalf.
Other forms of salary advance exist, including long-term advances, often made for specific purposes such as the purchase of a bicycle, season tickets, or moving expenses. These are not considered payments on account of earnings, so fall outside this scope.
CWG2 1.8.1 Advance of Salary — Real Time Information (RTI) reporting offers further guidance.
What about the fees
Where the employee is charged a fee for taking a salary advance, there is a question on whether the fee reduces earnings for National Minimum Wage purposes as they may be considered a payment for the benefit of the employer. No answer has yet been forthcoming from either HMRC nor DBT.
Want to know more about
The governments MoneyHelper service provides impartial information at:
They point out:
Salary advance – pros
- It won’t affect your credit score.
- The money is automatically adjusted from your next payslip.
- Depending on your situation, it might be cheaper than taking out loans or using other credit like overdrafts.
Salary advance – cons
- You get less money on your payday, so you’ll need to budget any earned income you access until then.
- It’s not regulated, so you can’t complain to the Financial Ombudsman Service (FOS) if things go wrong.
- You’ll need to check the terms and conditions each time you use it, as providers may alter them.
PAYadvice articles and resources relating to EWA
PAYadvice.UK 13/7/2024