We are a small organization of 40 people. My question here is on employee loans (advance). We have a policy wherein advances given to employees are not more than a month's salary and are to be repaid within 6 months. If an advance is needed above that, a proper reason is to be provided, and security is required. What can be done if an employee needs more advance and doesn't have security/surety to provide? What are the clauses that can be mentioned in an agreement/bond for employees who have been working for more than a year and have no security to provide? Also, when we state that the amount will be deducted from the final salary in case of resignation/termination, what if the amount is more? How can the amount be recovered if he/she quits without intimation? I am preparing an agreement for advances/loans for employees and was looking at what all clauses can be included. Please help. Thanks in advance.
From India, Hyderabad
Acknowledge(0)
Amend(0)
3From India, Hyderabad
Acknowledge(0)Amend(0)
Hi!
Direct employee loans drawn from company operating funds are a big no-no for large organizations. Aside from being illogical, the administration of personal loans/advances is messy to handle. Companies would do better to create a separate mechanism to provide for this employee need. Many companies I know, including multinationals, would support the creation of a credit co-op or a non-stock savings and loan association to serve employees' emergency financial needs.
If a company does not have a co-op or a non-stock savings and loan association, providing direct personal loans should be limited to reduce exposure. A one-month salary loan immediately deductible from the salary or separation pay can protect the company from unnecessary losses arising from opportunistic employees who might borrow and disappear!
My company helps business organizations create, set up, register, and run co-ops and non-stock savings and loan associations! Call us if you need our professional services at [email protected]
Best regards,
Ed Llarena, Jr.
Managing Partner
Emilla International Consulting Services
Email: emillaconsulting@hotmail.com
From Philippines, Parañaque
Acknowledge(2)
Amend(0)
Direct employee loans drawn from company operating funds are a big no-no for large organizations. Aside from being illogical, the administration of personal loans/advances is messy to handle. Companies would do better to create a separate mechanism to provide for this employee need. Many companies I know, including multinationals, would support the creation of a credit co-op or a non-stock savings and loan association to serve employees' emergency financial needs.
If a company does not have a co-op or a non-stock savings and loan association, providing direct personal loans should be limited to reduce exposure. A one-month salary loan immediately deductible from the salary or separation pay can protect the company from unnecessary losses arising from opportunistic employees who might borrow and disappear!
My company helps business organizations create, set up, register, and run co-ops and non-stock savings and loan associations! Call us if you need our professional services at [email protected]
Best regards,
Ed Llarena, Jr.
Managing Partner
Emilla International Consulting Services
Email: emillaconsulting@hotmail.com
From Philippines, Parañaque
Acknowledge(2)Amend(0)
Dear Rash77,
There appears to be a big confusion in your company on "Salary Advance" and "Employee Loan." This confusion is a result of not having a proper policy on salary advances or employee loans. The concepts are explained below:
Salary Advance: Why do we give "salary advance"? Giving a salary advance is a means of employee welfare. While running domestic activities, employees run short of money. To fulfill these domestic requirements, a salary advance is given. Generally, a salary advance is given for the number of days an employee has worked in the month. For example, if the employee asks for a salary advance on the 15th of the month, then HR checks the attendance and may disburse the advance depending on the number of days that the employee has worked. No guarantors are required for a salary advance. Therefore, the company does not incur any liability as such.
Employee Loan: This is also employee welfare. Generally, it is given interest-free. Many companies have a policy on employee loans. In this policy, criteria are defined for loan eligibility like the number of years of continuous service in the company, etc. Generally, the loan amount is recovered in three to ten installments. Two guarantors are required to accept the liability for default. Again in this case also the company does not have much liability. Yes, interest is lost on some amount. But when you calculate, you will find it negligible. For the default on the part of the employee to pay the loan, the amount is recovered from the guarantors.
Ex Gratia: When there are natural disasters like flood, fire, earthquake, cyclones, etc., or unnatural challenges like the destruction of property in riots and when an employee or employee's family members incur hefty financial losses, the company may give some ex gratia amount. This is purely a philanthropic measure and goes beyond routine employee welfare. There is no fixed amount for the disbursement. This amount is not recovered from the employee. This amount is based on factors like the gravity of the disaster, the length of the service of the employee, etc. Nevertheless, companies are wary of disbursement of ex gratia, as it could set a trend among the employees to ask for ex gratia even for minor reasons. The second challenge is employees start comparing with one another. The last challenge is the financial health of the company.
Replies to your other questions are given below:
What can be done if an employee needs more advance and doesn't have security/surety to provide? What are the clauses that can be mentioned on an agreement/bond for employees who have been working for more than a year and have no security to be provided?
Reply: Disbursing a loan without a guarantee from guarantors is risky. Whether to take this risk or not is the company's management's call. One way to protect the interest of the company is to take a signature on the bond paper. But again whether this agreement is valid in the eyes of the law needs to be checked by the lawyer.
Also, when we mention that the amount will be deducted from the final salary in case of resignation/termination, how about if the amount is more?
Reply: If the amount is outstanding and if employees wish to leave the company then the employee can very well refund the amount and leave. Nevertheless, leaving employment is ungracious on the part of the employee. When there was a need he/she asked for a loan to fulfill his/her financial obligations. Therefore, benignity demands continuation in employment at least till the loan period is completed.
How can the amount be recovered if he/she quits without intimation? I am preparing an agreement for advances/loans for employees and was looking at what all clauses can be included.
Reply: If an employee quits the company without intimation and that too without a complete refund of the loan amount, then you may lodge a police complaint. However, to lodge a police complaint, you need to have a proper legal agreement. In this agreement, the liabilities can be defined under contingencies like lock-in period of employment, abandonment of employment, the liability of repayment in case of the death of the employee, etc.
As a one-time measure, get this agreement done by the lawyer. For future cases, the same agreement can be used without the involvement of the lawyer.
Thanks,
Dinesh Divekar
+91-9900155394
From India, Bangalore
Acknowledge(3)Amend(0)
0
0
There appears to be a big confusion in your company on "Salary Advance" and "Employee Loan." This confusion is a result of not having a proper policy on salary advances or employee loans. The concepts are explained below:
Salary Advance: Why do we give "salary advance"? Giving a salary advance is a means of employee welfare. While running domestic activities, employees run short of money. To fulfill these domestic requirements, a salary advance is given. Generally, a salary advance is given for the number of days an employee has worked in the month. For example, if the employee asks for a salary advance on the 15th of the month, then HR checks the attendance and may disburse the advance depending on the number of days that the employee has worked. No guarantors are required for a salary advance. Therefore, the company does not incur any liability as such.
Employee Loan: This is also employee welfare. Generally, it is given interest-free. Many companies have a policy on employee loans. In this policy, criteria are defined for loan eligibility like the number of years of continuous service in the company, etc. Generally, the loan amount is recovered in three to ten installments. Two guarantors are required to accept the liability for default. Again in this case also the company does not have much liability. Yes, interest is lost on some amount. But when you calculate, you will find it negligible. For the default on the part of the employee to pay the loan, the amount is recovered from the guarantors.
Ex Gratia: When there are natural disasters like flood, fire, earthquake, cyclones, etc., or unnatural challenges like the destruction of property in riots and when an employee or employee's family members incur hefty financial losses, the company may give some ex gratia amount. This is purely a philanthropic measure and goes beyond routine employee welfare. There is no fixed amount for the disbursement. This amount is not recovered from the employee. This amount is based on factors like the gravity of the disaster, the length of the service of the employee, etc. Nevertheless, companies are wary of disbursement of ex gratia, as it could set a trend among the employees to ask for ex gratia even for minor reasons. The second challenge is employees start comparing with one another. The last challenge is the financial health of the company.
Replies to your other questions are given below:
What can be done if an employee needs more advance and doesn't have security/surety to provide? What are the clauses that can be mentioned on an agreement/bond for employees who have been working for more than a year and have no security to be provided?
Reply: Disbursing a loan without a guarantee from guarantors is risky. Whether to take this risk or not is the company's management's call. One way to protect the interest of the company is to take a signature on the bond paper. But again whether this agreement is valid in the eyes of the law needs to be checked by the lawyer.
Also, when we mention that the amount will be deducted from the final salary in case of resignation/termination, how about if the amount is more?
Reply: If the amount is outstanding and if employees wish to leave the company then the employee can very well refund the amount and leave. Nevertheless, leaving employment is ungracious on the part of the employee. When there was a need he/she asked for a loan to fulfill his/her financial obligations. Therefore, benignity demands continuation in employment at least till the loan period is completed.
How can the amount be recovered if he/she quits without intimation? I am preparing an agreement for advances/loans for employees and was looking at what all clauses can be included.
Reply: If an employee quits the company without intimation and that too without a complete refund of the loan amount, then you may lodge a police complaint. However, to lodge a police complaint, you need to have a proper legal agreement. In this agreement, the liabilities can be defined under contingencies like lock-in period of employment, abandonment of employment, the liability of repayment in case of the death of the employee, etc.
As a one-time measure, get this agreement done by the lawyer. For future cases, the same agreement can be used without the involvement of the lawyer.
Thanks,
Dinesh Divekar
+91-9900155394
From India, Bangalore
Acknowledge(3)Amend(0)CiteHR.AI
(Fact Check Failed/Partial)-The user reply contains some inaccuracies regarding the distinction between salary advances and employee loans, as well as the legal implications of recovering loan amounts from employees. Amendments are needed for clarity and legal compliance.
0
0
Let me make an attempt to share my thoughts from an India Income Tax perspective.
There is a difference between salary advance and loan. Any amount paid as an advance, which is deducted from the respective month's salary itself, is treated as a salary advance. On the other hand, any advance given to an employee that is paid off in installments over time is to be treated as a loan. This is subject to perquisite tax as per applicable tax guidelines.
Helping employees in need is a good practice, subject to ensuring that the concerned employee does not take it for granted and ultimately fails to pay. Some options that can be explored here are:
1. It is important that, as a policy, the company decides on the maximum amount of money they will set aside for loans to employees, thus restricting their financial risk.
2. Introduce the concept of guarantors, where any employee seeking a loan needs to provide two guarantors willing to pay off the defaulted loan amount if the employee fails to do so.
3. Restrict the loan amount to a maximum of 2/3 months' salary with repayment terms not exceeding 12/24 months.
4. Implement a rule that prohibits employees from availing a second loan while an existing loan is active.
5. Ensure that loan payouts to employees do not exceed 40-50% of their take-home salary, considering all loan deductions, including external ones. The sanctioned loan amount should be linked to this.
6. Establish an internal team comprising management and employees to jointly manage the loan policy and be accountable for it.
7. Maintain appropriate documentation to safeguard company interests in case of legal actions.
Keeping in mind all the points mentioned and considering some of the above suggestions, a policy document needs to be prepared. After due deliberations, modifications, and alignment with your organization's cultural framework, this policy should be implemented. As HR professionals, our objective should always be to help and support employees while ensuring that organizational values are not compromised.
Do let me know in case you need any specific support on this.
From India, Mumbai
Acknowledge(1)Amend(0)
0
0
There is a difference between salary advance and loan. Any amount paid as an advance, which is deducted from the respective month's salary itself, is treated as a salary advance. On the other hand, any advance given to an employee that is paid off in installments over time is to be treated as a loan. This is subject to perquisite tax as per applicable tax guidelines.
Helping employees in need is a good practice, subject to ensuring that the concerned employee does not take it for granted and ultimately fails to pay. Some options that can be explored here are:
1. It is important that, as a policy, the company decides on the maximum amount of money they will set aside for loans to employees, thus restricting their financial risk.
2. Introduce the concept of guarantors, where any employee seeking a loan needs to provide two guarantors willing to pay off the defaulted loan amount if the employee fails to do so.
3. Restrict the loan amount to a maximum of 2/3 months' salary with repayment terms not exceeding 12/24 months.
4. Implement a rule that prohibits employees from availing a second loan while an existing loan is active.
5. Ensure that loan payouts to employees do not exceed 40-50% of their take-home salary, considering all loan deductions, including external ones. The sanctioned loan amount should be linked to this.
6. Establish an internal team comprising management and employees to jointly manage the loan policy and be accountable for it.
7. Maintain appropriate documentation to safeguard company interests in case of legal actions.
Keeping in mind all the points mentioned and considering some of the above suggestions, a policy document needs to be prepared. After due deliberations, modifications, and alignment with your organization's cultural framework, this policy should be implemented. As HR professionals, our objective should always be to help and support employees while ensuring that organizational values are not compromised.
Do let me know in case you need any specific support on this.
From India, Mumbai
Acknowledge(1)Amend(0)CiteHR.AI
(Fact Check Failed/Partial)-The user's reply contains some inaccuracies regarding the treatment of salary advances and loans, tax implications, and the structuring of loan policies. For accurate guidance, it's essential to consider the legal aspects and best practices. Consider reviewing the relevant labor laws and taxation guidelines for precise information. Thank you for your contribution and willingness to support employees effectively.
0
0
Thank you everyone for your valuable inputs. I actually meant employee loans and not advance, regret for the inconvenience. We have introduced bond and also the concept of guarantors.
From India, Hyderabad
Acknowledge(1)Amend(0)
0
0
From India, Hyderabad
Acknowledge(1)Amend(0)CiteHR.AI
(Fact Checked)-The mention of bonds and guarantors in the context of employee loans is appropriate to ensure repayment. It aligns with best practices in loan management. (1 Acknowledge point)
0
0
In a small organization like yours with 40 employees, managing employee loans (advances) is essential. To address situations where an employee needs an advance exceeding one month's salary without security, consider implementing a tiered approval process involving higher management or a loan committee. Additionally, for employees with over a year of tenure who can't provide security, you might explore options like a longer repayment period or setting a cap on the maximum advance amount to mitigate financial risks. Finally, for cases where the amount is substantial and an employee quits without notice, you can include a provision to pursue legal avenues for recovery. Still, it's advisable to seek legal counsel to ensure compliance with applicable labor laws and regulations.
https://www.gofundshop.com/sba-loans/
From Poland, Warsaw
Acknowledge(0)Amend(0)
0
0
https://www.gofundshop.com/sba-loans/
From Poland, Warsaw
Acknowledge(0)Amend(0)CiteHR.AI
(Fact Check Failed/Partial)-The user's reply provides valuable insights on managing employee loans in a small organization. However, it's crucial to ensure that any provisions related to recovery align with labor laws and regulations to avoid legal issues. Consider consulting legal counsel for compliance assurance.
0
0
In a small organization like yours with 40 employees, managing employee loans (advances) is essential. To address situations where an employee needs an advance exceeding one month's salary without security, consider implementing a tiered approval process involving higher management or a loan committee. Additionally, for employees with over a year of tenure who can't provide security, you might explore options like a longer repayment period or setting a cap on the maximum advance amount to mitigate financial risks.
Finally, for cases where the amount is substantial and an employee quits without notice, you can include a provision to pursue legal avenues for recovery. However, it's advisable to seek legal counsel to ensure compliance with applicable labor laws and regulations.
From Poland, Warsaw
Acknowledge(0)Amend(0)
0
0
Finally, for cases where the amount is substantial and an employee quits without notice, you can include a provision to pursue legal avenues for recovery. However, it's advisable to seek legal counsel to ensure compliance with applicable labor laws and regulations.
From Poland, Warsaw
Acknowledge(0)Amend(0)CiteHR.AI
(Fact Checked)-The user reply provides accurate and insightful guidance on managing employee loans in a small organization. The suggestions align with best practices and legal compliance. (1 Acknowledge point)
0
0
Engage with peers to discuss and resolve work and business challenges collaboratively - share and document your knowledge. Our AI-powered platform, features real-time fact-checking, peer reviews, and an extensive historical knowledge base. - Join & Be Part Of Our Community.
Employee Provisions Regarding Loans & Sattlements.doc
CiteHR.AI
(Fact Check Failed/Partial)-The user's reply contains inaccurate information regarding employee loans and best practices. Direct employee loans can be provided by companies with proper policies and safeguards in place. Creating a credit cooperative is not the only option. Companies can have loan policies within legal limits. The user's suggestion does not align with standard HR practices.