What is the payroll advance and how does it work?

The salary advance or payroll advance is an employee's right which is included in the Workers' Statute, in article 29, where it is mentioned that “the worker and, with his authorization, his legal representatives, will have the right to receive, without the arrival of the day designated for payment, advance payments on account of the work already done ”.

This existing option for workers also contemplates collective agreements as part of their statutes to be carried out; The first thing to consider is that this option does not imply that an employee has the right to request that they be paid for the next six months of work, but that this option only contemplates the request for the amount corresponding to the last period worked and that has not yet been charged. In addition, it should be noted that cannot exceed the equivalent of 90% of the salary earned until the moment the request is made.

In order to better understand this, we will put an example in which a worker who has a monthly salary of about 1000 euros, makes the request for a payroll advance On the tenth day of the month, according to what was said previously, the employee has the right to request a maximum of 90% of the amount that corresponds to him until that day, in this case, it is equivalent to about 299 euros.

This advance on account, by law it is always deducted from the payroll corresponding to the following month to which it has been made effective; Furthermore, this payroll advance cannot be requested on a regular basis, as this situation represents an exception to the general regime regarding the time of salary settlement, which is legally supported. This is due to the fact that this situation supposes a readjustment for the company's treasury.

However, what is explained above is the strictest case that can be found, since in practice the Collective agreements under which advances are regulated in each company or in each sector are more flexible. In this way there are some companies that allow other types of advancesOne case is about wages not yet earned and for future jobs not yet performed, in these cases the regulation usually reads: "in which not only the date of payment of the salary is advanced but the same accrual of the right."

The regulations that these agreements have are usually the application cases, usually linked to extraordinary expenses or urgent and justified needs by the applicant, Some aspects of the history also usually intervene, such as the years of service to the company or the position that the applicant occupies.

The regulations that exist due to the pacts generated between the company and the worker are also important factors since legally there is nothing to prevent asking for a larger amount as an advance and agree on how to deduct it or pay it back, however, this might actually seem more like a loan than an advance.

Loans to workers

Some other conventions contemplate loans to workers. Some other agreements do not contemplate them and their approval depends more on the policy of the company and will be negotiated individually.

These loans are actually very similar to a common credit and its main difference with the payroll advance is that on these occasions the money that is given to the worker must be returned, with or without interest. It is in these cases when the company acts as a financial entity, which with the purpose of guaranteeing the return of the money puts conditions such as the deadline for the return, the amount to be paid, among others

The company is also the one that determines that the employee meets all the requirements, then the employee must fill out a form that will usually be delivered by the human resources department and thus be able to make the formal request. After, both the company and the worker sign the loan contract.

The accounting management of these loans is a bit more complex, because the companies are not a 100% financial entity. In most cases the company sets a lower interest than is commonly found in the market; It is because of this that the finance entity considers that the difference has the consideration of performance for the worker. Therefore, this difference must be declared in the corresponding tax return.

Considerations for requesting a payroll advance

Most likely, you have ever considered requesting a payroll advance in order to face an expense that went beyond what was planned or anticipated. And this is normal today because if we consider the tightness of the economy of each person caused by the crisis, many workers decide to make the decision to ask the company for an advance or advance salary. In a certain way, it can be said that it is a loan made by the company in which the guarantee of the payment is the same work of the employee. And although it is a good way to overcome a financial predicament, you always have to keep in mind the agreements between employees and companies, in addition to the regulations by the current labor law.

A way that exists to be able to obtain a payroll advance without this entailing the inconveniences that both the law as the payroll advance require, is the Cash Advance. This format can be considered as if it were a loan granted as if it were a salary advance, since the loan is made so that both the payment date and the date of entry of the payroll to the worker coincide. This helps that the limitations that exist when requesting a payroll advance are eliminated. In a certain way, it can be said that the company grants the worker a micro loan, named for the amount of money that is requested and the term in which it must be paid; However, despite being strictly a loan to meet some financial distress or some extra expense that was not foreseen by the employee, it can be treated as a payroll advance due to the aforementioned conditions, that is, the return date and of the payroll match.

The purpose for which these micro loans are designed is to be able to respond to the financial need of some person who requires a limited financing in time, concrete and subject to a relatively very short payment term. It is a loan designed to meet the needs of an employee who requires money to pay extraordinary and urgent natural expenses. Although the payroll advance can be defined as a cheap form of financing, it does not apply due to the nature of the employee's financial needs; This loan, although not directly, is still a salary advance that is made to the company (It is for this reason that it can be called a payroll advance), but with some regulations and characteristics that are quite different from those that govern the advance. payroll, in addition to having specific characteristics.

Advance or loan

Once we differentiate the salary advance from the accounting advance, we will proceed to mention the advantages and disadvantages so that you can choose the best option between the two. The advantages that the Cash Advance presents on a salary advance requested from the company are: the speed of response or immediacy, the privacy and independence that this type of advance presents are also advantages. Well, in constant advances it is not necessary to give or provide explanations to the bosses, because during the process everything is requested and authorized in a discreet way. Once the credit is authorized, the corresponding money is entered into the account of any bank that the employee prefers immediately, this being an advantage to the bureaucracy that has the process of requesting the advance of the payroll in a company. This singable advance is a loan that can be amortized or settled in advance, even reducing expenses to the amount accrued until the payment date. In summary, the accounting payroll advance is a discreet, fast and effective way to have a salary advance without giving explanations to the company and with a much faster response.

Now even though this time of advance has several advantages also has disadvantages, but these are not in terms of the process as in the case of the advantages but on the part of the employees because it should not be forgotten that although they are loans they must continue to be taken as payroll advances, so the money must be strictly returned paying it with the next payroll that is charged, because if this is not done, the costs that this loan entails will increase quickly.

As a last point we will say that despite the fact that this advance option exists in companies, it can only be used as an emergency resource, and this option should be used in an excessive way, because if what is required is structural financing you can and should go to a cheaper source of financing, in order to save as much money as possible during the process.