What Does it Mean for a Company to Prepay an Employee?

Your company may prepay wages and expenses in certain situations.

Most businesses pay their employees after work is completed, but there are programs that allow prepayment of employees and contractors. Prepayment is used by private and government employees in specific situations.

Function

Prepaying an employee is simple. Instead of completing a pay period and drawing a wage or salary at the end of that time, a company can prepay for services before the employee has fully completed his obligations.

Application

Prepayment is usually issued in specific situations. For example, employees may have travel expenses that they cannot cover themselves. The company may prepay for these expense either to the employee or directly to the travel broker. In addition, contractors often have a long lag between starting the job and completing it, so some entities, such as the Department of Defense, authorize prepayment of some or all of the contractor's fee.

Considerations

If an employee receives prepayment from her employer and fails to complete the required work, she will be responsible for returning all prepaid funds. In addition, if she uses prepaid travel expenses in a way that violates her organization's policies, the organization has the right to demand repayment in full.

References

• Garden State Community College: Prepayment of Travel Expenses
• Department of Defense: Major Changes to "Advances and Prepayments"