Workers using Employer Salary Advance Schemes (ESAS) could face underlying or longer term financial problems, says the Financial Conduct Authority (FCA).
An ESAS is typically run by a specialist scheme operator, which is usually unregulated, and sits between the employer’s payroll operations and the employee’s bank account. It enables the employee to draw down on wages earned before their next payday. There if often a fee attached to each drawdown.
The FCA is monitoring the ESAS market because it said the schemes can raise similar issues to that of payday loans. Therefore, the watchdog is highlighting possible risks to employers and employees:
The FCA said employers need to consider matters such as the build up of charges where the product is used repeatedly and where employees might become dependent on the scheme.
Employers should also consider the limitations of ESAS, such as the short-term nature of the relief.
Read more about the ways employers and scheme operators can mitigate some of the risks here.