We are a Small Organization Of 100 member team. One of employee has request for loan amount for 5+ Lakhs for sister Marriage. This being first time, I would like to come up with policy. Please guide me.
Request your comments for below queries.
- Maximum Loan amount
- Interest Rate
- Period of Repayment
From India, Madras
Request your comments for below queries.
- Maximum Loan amount
- Interest Rate
- Period of Repayment
From India, Madras
Dear Rogerkevin,
For the disbursement of the loan to the employee, there is no standard formula as such. You have to make your own policy. However, a few questions arise about your post. What is the monthly salary of the employee? Rs 5 Lakh is a too big amount. It could take more than five years for the refund of the principal and interest (provided if you levy it). Is your management prepared for this?
Be cautious while disbursing the loan. What if the employee runs away? Secondly, when you give a loan to one employee another may come up. Therefore, you should have a proper policy on the loan. Do you have it?
I have given an exhaustive reply on the subject of the past query similar to yours. The link is as below:
https://www.citehr.com/524137-employ...ml#post2223617
Thanks,
Dinesh Divekar
+91-9900155394
From India, Bangalore
7881For the disbursement of the loan to the employee, there is no standard formula as such. You have to make your own policy. However, a few questions arise about your post. What is the monthly salary of the employee? Rs 5 Lakh is a too big amount. It could take more than five years for the refund of the principal and interest (provided if you levy it). Is your management prepared for this?
Be cautious while disbursing the loan. What if the employee runs away? Secondly, when you give a loan to one employee another may come up. Therefore, you should have a proper policy on the loan. Do you have it?
I have given an exhaustive reply on the subject of the past query similar to yours. The link is as below:
https://www.citehr.com/524137-employ...ml#post2223617
Thanks,
Dinesh Divekar
+91-9900155394
From India, Bangalore
The best policy is not to give loans.
In any case it is a bad idea to encourage such expensive marriage celebration where the employee can not afford it.
There are also certain restrictions imposed by payment of wages act. Only it calls it as advance.
You can not give advance exceeding 4 months salary
Total deductions, including of, Deduction can not exceed 50% of gross wages
Any amount remaining at the end of 18 months can not be recovered
Of course the act don't apply if salary is above ₹18000 but it gives pointers to how the courts tend to think
From India, Mumbai
In any case it is a bad idea to encourage such expensive marriage celebration where the employee can not afford it.
There are also certain restrictions imposed by payment of wages act. Only it calls it as advance.
You can not give advance exceeding 4 months salary
Total deductions, including of, Deduction can not exceed 50% of gross wages
Any amount remaining at the end of 18 months can not be recovered
Of course the act don't apply if salary is above ₹18000 but it gives pointers to how the courts tend to think
From India, Mumbai
If you about to developing a policy then i would recommend the criteria .
1 . No of years service depends on the starting of the gratuity of provident fund as a security for the company.
2. Give loan equal to only 3 gross salaries more can be given by considering the gratuity amount company going to pay if he leave
3. If someone you know closely and with reference and if you can trust him you also can give him the loan amount
4. Loan amount should be recovered in 12-15 monthly installment .
It depends in how many years employee get eligible for the gratuity or any benefit company will be giving at the day of his final settlement . However when you have a amount in hands of employee in form of gratuity or provident etc on that basis you can decide whether to give loan or not or in case employee left the company employer would get maximum chance to recover from his final settlement .
Loan is not a right of employee its just a favor to retain , help and make them to stay long with the company .
From Pakistan, Karachi
1 . No of years service depends on the starting of the gratuity of provident fund as a security for the company.
2. Give loan equal to only 3 gross salaries more can be given by considering the gratuity amount company going to pay if he leave
3. If someone you know closely and with reference and if you can trust him you also can give him the loan amount
4. Loan amount should be recovered in 12-15 monthly installment .
It depends in how many years employee get eligible for the gratuity or any benefit company will be giving at the day of his final settlement . However when you have a amount in hands of employee in form of gratuity or provident etc on that basis you can decide whether to give loan or not or in case employee left the company employer would get maximum chance to recover from his final settlement .
Loan is not a right of employee its just a favor to retain , help and make them to stay long with the company .
From Pakistan, Karachi
Both PF and gratuity are protected amounts.
As per law these can not be claimed or set off against any money due to the company.
In case of PF, it is anyway not under control of the company. The amount will be paid directly by the PF authorities and not by the company. They have no right to give nor any authority to stop the amount from being paid.
Gratuity can be withheld only in case of any act of moral terptetude by the employee. Defaulting on a loan does not count as such and therefore is no security in the given case.
From India, Mumbai
As per law these can not be claimed or set off against any money due to the company.
In case of PF, it is anyway not under control of the company. The amount will be paid directly by the PF authorities and not by the company. They have no right to give nor any authority to stop the amount from being paid.
Gratuity can be withheld only in case of any act of moral terptetude by the employee. Defaulting on a loan does not count as such and therefore is no security in the given case.
From India, Mumbai
Hello Rogerkevin,
While appreciating your Company's gesture to help the employee tide over a critical personal financial situation, I think you also need to keep the financial condition & size of your Company as well as the long-term consequences of such a Policy--frankly I haven't seen many companies of similar size go such extra steps, as a Company policy/practice, to take care of their employees [except on a case-to-case/selective basis].
However, like Dinesh & Saswat mentioned, there COULD be quite a few pitfalls in such policies--which if not taken care-of from the beginning are likely to make such a good proactive policy more of a bane than otherwise.
A better way could be for the Company to tie-up with some Financial Institution/Bank, since the chances of individuals getting such loans @ reasonable interest rates are lower than when a Company is involved.
This would also save your Company from taking care of the legal paperwork, due diligence, etc--the legal paperwork in such matters would surely have to be foolproof, covering ALL the angles & possibilities.......one of the critical ones being what Dinesh mentioned ['What if the employee runs away?']........which, in all probability, will need some amount of tweaking for every case.
In a nutshell, this model ensures the Company acts ONLY as a Facilitator......an analogy would be that of an Aggregator, like Ola, Uber, etc in the Cab/Taxi business.
Rgds,
TS
From India, Hyderabad
While appreciating your Company's gesture to help the employee tide over a critical personal financial situation, I think you also need to keep the financial condition & size of your Company as well as the long-term consequences of such a Policy--frankly I haven't seen many companies of similar size go such extra steps, as a Company policy/practice, to take care of their employees [except on a case-to-case/selective basis].
However, like Dinesh & Saswat mentioned, there COULD be quite a few pitfalls in such policies--which if not taken care-of from the beginning are likely to make such a good proactive policy more of a bane than otherwise.
A better way could be for the Company to tie-up with some Financial Institution/Bank, since the chances of individuals getting such loans @ reasonable interest rates are lower than when a Company is involved.
This would also save your Company from taking care of the legal paperwork, due diligence, etc--the legal paperwork in such matters would surely have to be foolproof, covering ALL the angles & possibilities.......one of the critical ones being what Dinesh mentioned ['What if the employee runs away?']........which, in all probability, will need some amount of tweaking for every case.
In a nutshell, this model ensures the Company acts ONLY as a Facilitator......an analogy would be that of an Aggregator, like Ola, Uber, etc in the Cab/Taxi business.
Rgds,
TS
From India, Hyderabad
Loans to employees need to be discouraged.
As learned members state,it encourages people to live/spend beyond their means.
Tying up with financial institutions can be considered taking all aspects into a/c-like employee leaves after taking loan/employee absconds.The tying up with financial agency needs to be done with care and keeping all legal angles in mind.
Probably small advances like Festival advance/two wheeler advance can be considered with proper guidelines-including refund procedure,interest rates,surety for loan etc.
I would not recommend paying loans of Rs5 lakhs to an employee-first it becomes a precedent.
Recovery aspect if employee leaves or absconds need to be kept in mind.
Gratuity and PF amounts/accumulations are exempt from any sort of attachment in most cases.So don't bank on security of PF/Gratuity even if employee gives declaration on stamp paper.
Encourage employees to save and make a financial road map for themselves and not to depend on employer for loans.
From India, Pune
As learned members state,it encourages people to live/spend beyond their means.
Tying up with financial institutions can be considered taking all aspects into a/c-like employee leaves after taking loan/employee absconds.The tying up with financial agency needs to be done with care and keeping all legal angles in mind.
Probably small advances like Festival advance/two wheeler advance can be considered with proper guidelines-including refund procedure,interest rates,surety for loan etc.
I would not recommend paying loans of Rs5 lakhs to an employee-first it becomes a precedent.
Recovery aspect if employee leaves or absconds need to be kept in mind.
Gratuity and PF amounts/accumulations are exempt from any sort of attachment in most cases.So don't bank on security of PF/Gratuity even if employee gives declaration on stamp paper.
Encourage employees to save and make a financial road map for themselves and not to depend on employer for loans.
From India, Pune
Community Support and Knowledge-base on business, career and organisational prospects and issues - Register and Log In to CiteHR and post your query, download formats and be part of a fostered community of professionals.
Legal Clarification on Absconding Employee, Contract Labour Engagement & Leave Entitlement Ammen.pdf
Employee Appraisal Form new.doc