Think Twice Before Making Payroll Advances To Employees

It can be difficult to turn down an employee who asks for an advance on their earnings. However, there are lots of reasons for companies to think twice before making payroll advances to employees.

One big and obvious reason is the administrative burden. Another is the possibility that the advances will be subject to the disclosure requirements of the Federal Truth in Lending Act (TILA). Specifically, a company may be subject to TILA requirements if, when advancing payroll, it charges a fee which is treated as a finance charge, and has extended such payroll advances or other types of consumer credit more than 25 times in the preceding calendar year. Such advances may also be subject to state consumer credit laws and wage assignment statutes in the states where employees are located. Additionally, state laws regulating payday lenders may apply and require licensing if the company takes a post-dated check from the employee.