Many employees do not have the monetary resources to see them through until the next payday. Their solution is to request a pay advance, which is deducted from their next paycheck. It is a humane gesture on the part of the payroll manager to comply with such requests, but it wreaks havoc with the efficiency of the payroll department. Whenever such a request is made, the payroll staff must manually calculate the taxes to take out of the payment, then manually cut a check and have it signed. And, that's not all: The staff must manually enter the pay advance in the computer system so that the amount is properly deducted from the next paycheck. For larger advances, it may be necessary to make deductions over several paychecks, which requires even more work. Furthermore, if an employee quits work before earning back the amount of the advance, the company has just incurred a loss. Clearly, paycheck prepayments do not help the efficiency of the payroll department. This is a particularly significant problem in organizations where the average pay level is near the minimum wage, since the recipients may not have enough money to meet their needs from pay day to pay day.

The best way to support this rule is to form an association with a local lending institution that specializes in short-term loans. Then, if an employee requests an advance, he or she can be directed to the lending institution, which will arrange for an interest-bearing loan to the employee. When this arrangement exists, it is common for employees to tighten their budgets rather than pay the extra interest charged for use of the lender's money. This improves employee finances while increasing the processing efficiency of the payroll staff.

It's important to arrange for alternative employee financing before setting up a no-advance rule, in order to be certain that alternative financing will be available to employees. Then go over the rule with all employees several weeks before it is to be implemented, so that they will have fair warning of the change. Also, make brochures available in the payroll department that describe the services of the lending institution, as well as contact information and directions for reaching it.