Employees Taking Too Much Salary Advance.....Pls Suggest

Dear All,

In my organization, employees are taking too much salary advance by stating reasons like marriage at home, kids' admission, etc. We are receiving advance salary requests every third or fourth day as if the salary advance is their right. Consequently, the finance department is burdened and facing difficulties.

We have been asked to control this issue, so please suggest some measures to overcome this situation.

Hi Tarun,

You need to change the salary advance policy. Make salary advance available only twice a year. Assuming you must deduct the entire advance against the salary for the month, if not completed before, the first advance cannot be given a second time.

Also, the amount of the advance can be decided based on the grade or salary amounts. Implementing restrictions on the number of times an advance can be given and the amount of the advance will reduce your difficulties.

Regards,
Harshad

Thank you, Harshad, for your valuable replies. As per my current policy, an employee is entitled to avail a salary advance up to a maximum of 3 times his monthly net salary, subject to a maximum limit of 75K. Please suggest what modifications can be done.

Hi Tarun,

If the ceiling limit of a salary advance is kept equivalent to the current salary or 75% of the salary, maybe it can be controlled. Because a salary advance is not a loan; it's just the salary given in advance, so why should it be three times more than the salary.

Dear Tarun,

Advance against salary is not a big issue, but the concern lies in the amount that employees can request as an advance. I suggest proposing to the management that they offer up to 50% of the salary as an advance, with a cap at 70% if necessary. Any advances given should be deducted from the subsequent salary payment. It is important to consider that if an employee leaves for another organization (job change) or absconds, the employer will have nothing to recover except losses.

Regards,
Pankaj Chandan

Hi Tarun,

Salary advance should be given against the salary due for that particular month. The same can be recovered when the actual salary is paid or credited for that month. The limit you have mentioned is too high, considering it is the salary advance, and you may not be recovering the same in the same month.

Modifications can be the number of times a salary advance can be taken and the amount of advance, which should not exceed half a month's salary for any level of employee.

Regards,
Harshad

Tarun,

Suggest the following in your salary advance policy:

1. Restriction on the amount: 2 months of basic or net salary, up to a maximum of 50,000/-
2. Repayment: to be repaid in 5 or 6 months or earlier.
3. At the time of availing such facility, there should not be any outstanding loans or advances taken.
4. Purpose of advance: Employees need to state the purpose and validate the same by producing relevant documents. For example, if it is for construction, invoices or payment records need to be produced.
5. Last, but not least, the Management reserves the right to approve or disapprove such requests. Please consider only genuine requests.

Hope these suggestions help you.

Dear Tarun,

Please find below the proposed Salary Advance Policy:

Salary Advance shall be allowed only three times in one calendar year or financial year. The advance amount shall not exceed 50% of the salary earned in the month of application.

Implementing this policy will help in reducing the frequency of salary advances.

Regards,
Badlu

Hi Tarun,

Based on my experience, I believe there should not be a policy for salary advances. If a policy is established, employees may come to view it as an entitlement. Instead, it is advisable to have a policy in place at the backend that is accessible only to HR and top management.

Some features that the policy can include are as follows:
- The maximum salary advance that can be provided is up to one month's net salary.
- The advance is to be repaid immediately from the following month's salary.
- Salary advances are only granted in specific cases, such as medical emergencies, with approval from the respective functional head.

I trust that the above suggestions are helpful. Please feel free to reach out for any further clarification.

Regards,
Punit

Hi,

Salary advance can be given to the employee only after calculating his/her working days for that particular month. The advance amount must not exceed his/her earned days for that month.

For example, if x's salary is Rs. 10,000 per month, and x is looking for an advance on the 15th day, it means he is eligible to receive an advance of Rs. 5,000. If x is absent for 4 days, then x is eligible to receive an advance of Rs. 3,500. Likewise, we have to calculate the advance.

If the employee leaves the organization, then also no problems.

Regards