Loans laws & HR compliance analysis

Loans: What you need to know

There are arguments both for and against the policy of advancing money to an employee. A loan may alleviate an employee's financial stress and the distraction it might cause in the workplace. On the other hand, some companies have decided that good employer/employee relationships are hard enough to maintain without the added complications of a lender/borrower relationship. Employers that do occasionally make advances against wages rarely consider making a loan to nonexecutive employees, except in an emergency, and then only when all conventional loan sources have been exhausted or are unavailable. Such an emergency situation might involve an employee learning of a family illness or death requiring immediate travel arrangements after banking hours. In some cases, employers may provide loans to employees if they do something the employer wishes; e.g., buy homes in neighborhoods or cities in order to revitalize them. Sometimes the employer will forgive these loans. Many companies that want to provide assistance in meeting employees' financial needs consider providing loans through a 401(k) plan or through participation in a credit union.
In order to set clear guidelines, no matter what they are, it is a good idea to adopt a policy that addresses loans to employees. The negative impact of a strict policy (e.g., that there will not be any pay advances under any circumstances) can be softened with an explanation of the reasoning for the rule. Exceptions to the general rule may be adopted. The policy should provide explicitly who has authority to make exceptions. Most employers usually authorize only one or two officers to grant loans. Other factors to address in a loan or advance policy include maximum loan ...

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