Loan Agreement for Employees

The loan agreement supplied here is specifically tailored for employees.
For a variety of other loan agreements, please refer to our page on Promissory Notes.

An employee acknowledgement of debt should be signed to serve as proof that money is owed and to grant permission to the employer to deduct payments from the salary.

handing over money

Unlike a Promissory Note, where the borrower is in control of making repayments, the employer can control repayments of a staff loan.

It is therefore important for the employer to get written authorization to deduct money from a salary. Without a written agreement in place, you may be sued for damages should you withhold salary payment from an employee.

You should specify the reason for deduction such as a cash loan or advance against a salary or stock purchases made from the company etc. However, an employee may have personal reasons for requesting a loan from the company (for unforeseen expenses, emergency or hardship) and need not disclose the reasons in detail.

You do not need written authorization for statutory deductions such as employees tax.

Note:
Visit our Employment main page for links to all the relevant free legal forms for the work place and their related guidelines.

The employee loan or debt agreement below also makes provision for the full amount to be deducted should the employee resign. However, this may be seen as an acceleration of debt repayment i.e. deducting an amount greater than the weekly/monthly instalment amount agreed to, which may be unlawful in your jurisdiction!

The employer would therefore be wise not to extend loans greater than the weekly or monthly salary. A more extensive installment loan agreement should be drawn up for longer term or large loans, which can endure beyond the term of employment.

Your labor laws may also limit deductions to a percentage of gross remuneration, so check with your local laws before extending credit. Usury law will also determine the amount of interest that may be charged. Please refer to our guidelines on promissory notes for more information on interest rates and interest free loans.

Employee Loan Agreement

Employer/Company Details:

Employee Details:

1. The Employee hereby acknowledges a debt to the Employer/Company in the amount of _________________________($_______) for the following reason(s):

2. The Employee acknowledges and agrees that interest at a rate of ____________(_____%) per annum shall accrue on any outstanding amount and that repayment shall first be applied to interest and thereafter to the principal amount.

3. The Employee hereby authorizes the Employer/Company to deduct the amount of ________________________($_______) per week/month from the Employee's salary starting from _________________20____ until the amount is paid in full.

4. The Employee further agrees that the entire outstanding amount will be deducted from the Employee's final salary upon resignation or termination of employment with the Employer/Company.

Signed at ____________________ on this ________day of 20_____.

Employee's Signature: ________________________

Witness1 Signature: __________________________

Witness2 Signature: __________________________

***

Do You Have To Pay Back Relocation Costs Even After Leaving The Company?

The short answer is yes. In our staff loan agreement above we make provision for the reason of the loan, which may be:

An employee relocation loan - The company may pay the relocation expenses upfront, but if there is a contractual agreement that the employee will repay, then the onus is on the employee to pay back whichever amount was agreed upon.

Employees (and their partners/spouses) should therefore be very sure of the employment position before taking the costly step to relocate.

wieghing up money and staff

Lending Policy for a Staff Loan Agreement

An employer would not want to get involved in its employees' budgeting or to manage their finances, so there should be a staff loan policy in place and loans must be extended responsibly by the employer e.g.:

A limit on the number of times within a calendar year to request/grant a salary advance.
Staff may use an excuse such as not having money for transport to get to work and thereby try to coerce the employer to extend a loan.
Constant overspending by an employee should not become an employer's problem!
A limit on the percentage of remuneration that can be advanced;
Advancing loans to staff incurs administration costs to the company and therefore there is a limit on the time allowed to pay back a loan. For small loans a company may prefer to waive the interest charge and specify a minimum administration fee instead; and
A required minimum time to have been in employment of the company before a loan will be considered. Temporary or casual staff do not qualify for company loans.

Should the employee leave the company (either voluntarily or having been dismissed for a valid reason) before a loan is paid up, the employee remains legally bound to repay the balance.

Making loans to employees to aquire shares in a company qualifies as a benefit to the employee and may be taxable. You need to consult with your financial advisor or company auditor on the best way to structure this type of loan agreement.

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