The FCA has published a statement setting out its view of the risks and benefits of Employer Salary Advance Schemes (“ESAS“) and what employers and employees should consider when using them.
ESAS are commonly promoted as an alternative to high cost credit. The schemes allow employees to access, usually for a fee, some of their salary before their regular payday. While FCA does not usually regulate ESAS as an early advance of salary provided by an employer does not involve the provision of credit, the regulator recognises that they can raise similar issues and sets out its views on the following:
What employees need to consider – employees should bear in mind that the amount they were advanced and any fees will be taken from their next pay cheque. They should be sure they can meet their outgoings and pay any expenses that might arise. If there are difficulties doing this, then this might indicate a more underlying or longer term financial problem and a salary advance might only partially help.
What employers need to consider – employers should consider all aspects of the scheme, including the build up of charges where the product is used repeatedly and employees may become dependent on it. Amongst other things, employers should also consider the short-term nature of the relief. They may want to suggest that employees can seek debt or more holistic financial advice, and signpost employees to sources of free advice.
The risks for employees and employers – FCA notes the following:
- Lack of credit regulation.
- Lack of transparency about cost.
- Dependency and repeat use.
- Lack of visibility for credit reference agencies.
How employers and scheme operators can mitigate some of these risks – FCA sets out the following:
- 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 individual employees are using the scheme frequently.
- Employees could be provided with periodic notifications where there is an accumulation of transaction charges.
- Similarly, scheme providers could develop systems that monitor the pattern of usage of individual employees. Where there is a pattern of repeat use, this could trigger alerts that might provide guidance and signpost the employee to organisations that provide free debt advice.
The FCA intends to continue to monitor the ESAS market for developments including the emergence of new business models.