Whilst the majority of employers avoid granting loans to their employees, many will be asked at some time or another to assist employees. The rules regarding the granting of authority, as well as the purposes for which loans will be granted, need to be carefully laid down and controlled.

As far as ad hoc loans are concerned, some employers may prefer not to advertise the fact that the Organisation is prepared to assist, fearing this could encourage additional applications. Ideally, this type of loan should be the exception. In addition to ad hoc loans, an increasing number of employers make loans to assist employees with travel costs - e.g. season ticket loans. These would normally be dealt with in a far less investigative manner, although a repayment authority, such as that set out below should be completed in each case.

Example of Policy
Whilst [the employer] believes that employees can and should manage their personal finances successfully, it recognises that at times short-term financial help may be necessary. It will sympathetically consider loan applications to [maximum sum] from staff with at least two years service. These arrangements are in addition to the assistance in respect of the 'week in hand' arrangements as set out in 3 below.

Loans may only be approved by [name] after submission of a written application and completion of a loan repayment authority. All loans must be repaid by deduction from wages or salary, with any outstanding amount due on or before an employee leaves service. The loan repayment authority grants power to the employer to deduct loan repayments from wages and any balance outstanding from monies due, re wages, holiday pay, etc., should an employee leave.

Where a new recruit is required to work two weeks before receiving their first weeks wages (i.e. the 'week in hand' arrangement), on application, they may be granted a loan of up to 60% of the gross amount of the first week's wages at the end of the first week. This advance will be recovered by two equal deductions from the first two wage payments made. Other than in these circumstances loans will only be granted to employees with two years or more service.

Loans will be granted in respect of pressing family or personnel circumstances but will not be entertained in respect of non-essential expenditure, for example, a new car, holiday (unless in the aftermath of a lengthy illness), etc. [Name] will have the authority to decide whether a loan qualifies under this policy and their decision will be final.

In the event of a loan being granted, a copy of this policy will be given to the employee and in signing the loan repayment authority, they will be acknowledging receipt of this policy.

Repayment Authority
With the legal prohibitions on employers making DEDUCTIONS from wages, it is essential that a loan repayment authority form is completed. The following draft allows considerable flexibility concerning the way in which the loan can be recovered and needs to be customised for particular circumstances. It is important that the employer has authority to enable the deductions to be made from wages.

Signing such a form allows the employer to recover the amount in installments. However, where a loan repayment period spans wages increase(s) the suggestion(s) that having increased income, the employee might wish to increase the repayments to liquidate the loan could be made. In such circumstances a fresh authority should be sought - either using the above draft or a simple memo.

Training Loans
A number of employers concerned at the high cost of training, now require their employees undergoing such training to agree to repay the whole or part of such training costs either during employment or, more specifically, should they leave their employ within a specified period after the completion of the training. There is little difference between recovering such expenditure and recovery of a loan - an appropriately worded authorisation is needed. Here, however, the important facet is not so much to agree repayment during employment but to ensure the situation regarding repayment at or after termination of employment must also be clear.

There is a further danger to the employer in making an illegal deduction since once it has been so classified the employer is barred from making recovery in any other way (that is through the Courts).

Reducing Debt
Although some employers require employees to finance the training costs during employment, on the basis that the training has benefited the person as much as, or more than, the employer, most tend to concentrate on recovery should the employee leave and recognising that the value of the training has either been gained by the employer or has less value with the passing of time, a reducing percentage for recovery over time may be appropriate.

Graduate Loans
During their period of study many graduates are entitled to State loans to assist with living expenses. These loans are repayable to the State but not until the salary received by the graduate reaches or exceeds £10,000 per annum.

Granting increases to graduates just below this salary threshold needs to be carefully considered to avoid any incentive generated by the receipt of an increase, only marginally above the threshold, being more than eradicated by the need to make deductions in respect of the loan repayment. The manner by which the individual loan can be collected needs to be examined and complied with. There are currently discussions concerning the recovery of tuition fees from graduates which again, may be a task placed upon the employer, subject to salary levels being reached by the employee.

Normally the employer will wish to collect by deduction from salary in which case the employee must complete a DEDUCTION authority.

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