Published On: September 7th, 2017 / Last Updated: December 25th, 2021 / 2.5 min read /

Can employee loans benefit your organization?

Many Employees ask their employers for loans (advance payment) when they face financial difficulties or emergencies.  As approaching the employer seems to be a good idea, when considered to bank/finance, where one has to follow a bundle of processes and documentation.  So with the employer employees can set flexible repayment dates aligned with their salaries.  However there are advantages and disadvantages for providing loan to employees that should be considered before going for it.

Employee loans can motivate to work harder

If the employee is concerned about family, medical billing, rent due or other financial concerns, then it will make it difficult to focus on work.  Lending employee a helping hand at this stage will help increase productivity and focus on work.  As knowing that employer has helped him in his bad situation, will motivate the employee to work harder as well and more importantly sincerely.

Employee loans can encourage loyalty

Employees who have received help from the employer may be likely to stick on his job for longer and also help in testing times for the company by not abandoning the ship sooner.  Knowing that employer has helped during the employees’ tough times, employees will be keen to take a pay cut or put more hours for less remuneration for helping the company out during unfortunate times.

It can be a double edged sword; can create unwanted rift between employees

When providing loans to employee, it is important to review the financial status, the ability to repay the loan.  If one employee’s financial status makes a better candidate for loan than other, rejecting the other employee’s loan can create unwanted rift among the employees.  In such cases providing a well defined and published policy for loan application, as well providing a detailed documentation for the rejection, is a good idea to avoid these situations.

Long term repayment can also be stressful

Normally repayment will be set as a deduction for certain number of installments, however if the number of installment is higher, than it can be stressful to employee as  it mean having continuous deductions in net pay.

Providing Employee Loans can be a good or a bad practice, but more importantly it would depend on a lot of factors including the organization’s financial health, employees’ financial situation and background.

With HR Chronicle, we make sure this entire process is automated.  Here the employer provides the loan to the employees and can set number of installments for repayment of the loan.  Each installment will be deducted from salaries automatically.  Also HR can generate the report at any moment of time to check pending installments and balances.  There is also an option called deduction repayment, where after few installments you can just to do settlement by providing the remaining balance as a lump sum amount.  No matter which way you go we have you covered.

Contact us to find out how HR Chronicle can automate your loan management practice and add more value to your organization.

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