Small Business 101: A PAINLESS WAY TO ELIMINATE EMPLOYEE ADVANCES (AKA “BOSS, CAN I ASK YOU FOR A FAVOR?”)

Small Business 101: A PAINLESS WAY TO ELIMINATE EMPLOYEE ADVANCES (AKA “BOSS, CAN I ASK YOU FOR A FAVOR?”):

Posted by Brian Lund in Small Business 101Trading and tagged with 


These days everybody is an “entrepreneur” which is usually code for “I don’t know how to run a business.”  For over 20 years I owned a small business and experienced all its different phases from the start-up process to the exit sale, and everything in between (and I do mean everything).  
In this series I will share some of my insights so that if you are currently running a small business or thinking about starting one, you can benefit from my experiences and hopefully avoid my mistakes (and there were a lot of them).  And remember, every small businessman is an entrepreneur, but not every entrepreneur is a small businessman.
How many times has this happened to you?  One of your employees sheepishly knocks on your office door and asks if they can talk to you for a minute.  They then proceed to spin some tale of woe, setting you up for the inevitable request for an advance on their upcoming paycheck.  What do you do in this situation?
Employee advances can be a major pain the neck for a small business owner.  They create extra work and tracking in order to make sure they are reconciled correctly come payday, and more importantly, they put a strain on cash flow.  And once an employee has received an advance you have sent out a message that can potentially cause things to spiral out of control.
By agreeing to an advance you are in essence letting that employee know they can always come to you when they are a little short on cash.  If your other employees find out (and they always do), then that same message is sent to all of them as well, and you can’t very well tell them “no” when have said “yes” to someone else (which would set the stage for the beginnings of a “discrimination” complaint).
Now some small business owner’s have no problem turning these requests down no matter what sob story is given to them, but if you are like I was, you have this annoying little soft spot inside you, and you end up giving in.  You mumble some vague warning that resembles “don’t make a habit of this”, but the blood is already in the water, and the sharks know it.
Let me point out, I am not talking about a special circumstance such as an unexpected illness or emergency in your employee’s family.  In those cases, it may not only be appropriate, but an ethical and moral imperative to help out with an advance.  I am talking about an employee who regularly asks for advances, most likely due to their own issues regarding budgeting and living within their means.
If you are paying fair rates for the type of work your employees perform, they should have no reason to ask for advances.  If they are not earning enough to cover their costs of living, it is THEIR responsibility to either manage their finances better or move to a job where they think they can earn more.
So let’s say you have an employee whom you like and value, that keeps asking for advances.  Although you would like to say “yes”, based on the issues we highlighted above, it is becoming a burden on your business.  One of things you can do is to change your employee’s pay day from Friday to Monday.
Why does this simple change make a difference?  Well, let’s be honest here.  You hand a lump sum of money to your employees on a Friday afternoon following (hopefully) a week of hard work.  Think of how many opportunities there are to rob your them of their hard earned money between then and Monday morning.
First up is the local watering hole that everyone is heading to after work.  Next is the Saturday night poker game and then the Sunday football pool.  Don’t forget about the “Weekend Super Sale” at Best Buy, or any of a number of retailers.  Point is, if your employees don’t have the best money management skills, they are going to get to Monday morning considerably “lighter” in the pocketbook than they were at pay time.
By paying your employees on Monday’s, they don’t have nearly the opportunity to go through their check pre-maturely.  Most of their time during the week will be spent at work to start with, and the obligation for them to arrive at work on time and ready to go each day will keep them from doing too many extracurricular activities during the week.
If that doesn’t work then pay them on Monday, but every week instead of every two weeks.  Heck, you could even pay them daily if you really wanted to.  I even know a small business owner who paid his employee’s wife instead.
She came into the office one day and told him that they were having money problems because her husband could not handle his paycheck responsibly.  She had decided that if she could get the paycheck into her hands first, then they would be much better off.  With her husband’s agreement (and his written approval), she came by every payday to pick up his paycheck, and in fact, the requests for advances stopped.
As a small business owner you have enough to worry about without getting involved in your employee’s personal finance habits.  But if you have an employee (or employees) whom you want to retain, but without the annoying and time consuming advances, first try this technique and see if you can’t solve the problem.  If it doesn’t, you still may have to use the “no” word, or even let your employee go, but at least you can do that knowing that you tried your best to solve the problem in a more reasonable way.