Employee Loans: Is It A Good Idea?


A loan is needed by someone who needs fast money to pay for something near the due date. As the economic state of the country fluctuates, an employee may find difficult to survive in a day to day life. This rough situation leads to them asking for loans to their companies. Employees have dedicated their time and effort for the company, when they are in need at times like this, is it still a good idea to lend them some money? To answer the question, let’s discuss the pros and cons of employee loans.

The pros and cons of employee loans

Loaning some money to the employees may not be a good idea, but it actually will give the company some benefits too. Here are some pros and cons regarding employee loans that you need to know:

The pros:

  • Giving loans to an employee can raise their loyalty

This may happen in your younger life that there is a reciprocity principle—a practice of exchanging things with others for mutual benefits. In this case, the loans benefit the employee because it helps them to pay for whatever it is that’s important. On the other hand, giving loan also benefits the company in term of fostering the employee’s loyalty. You, as the company, have helped your dedicated employee to survive economic difficulty. If you want to avoid feeling worried that they can’t repay the loan, it is better for your company to make a policy governing the issue.

  • Loans are making the employee less worry and focus more on work

That’s true! When an employee has something else to think about, such as his debts, his attention and focus are taken solely to find a solution on how to pay those debts. This is a major catastrophe for the company! The success of a company is measured by the performance of its people. If the people are lacking focus because of their debts, then it is better for the company to lend some money in exchange for the focus. The loans will motivate them to work harder to repay that as well, resulting in an increased performance.

The cons:

  • Thinking about repayment may give the employee stress and pressure

This is where the table turns. Generally, a company wishes the loan they give to the employee would make him work harder and more focus. However, life is not always going your way. The stress and feeling pressured come from extending the loans. Sometimes, economic difficulty doesn’t happen once, but twice or even more than thrice. If an employee chooses to extend the loans and stack them on top one another, this will only give him stress. Rather than granting his wish to lend more money he could never repay, a company should make a wise decision and suggest him to have a talk with a financial counselor.

  • Beware of discriminations

As a company, it is important to consider a few things before lending money. One of those things is the employee’s economic health. Knowing that he or she has a healthy income, it will satisfy the company, because he can repay the loan. However, the employee that you turn down may sue you for discrimination lawsuits. That is why; refusing a loan has to be done very carefully.

  • Lending some money will increase employer’s tax obligations

A loan is counted as an income. That is why; the process of loaning has to be done properly. Don’t forget the details on the interest rate. Moreover, documentation should be prepared clearly. If not, your company can be subjected to tax obligations or even worst, do something illegal.

The solution to deal with some problems above is to set up terms and policy to protect the company from any lawsuits. It is highly recommended that every detail during the process is protected by a clear regulation. This is made to avoid late repayment that may harm your business. Therefore, whether it is a good idea or not to lend some money to your employees, Human Resources Department should actually know the best policy regarding this payroll system. If a help is needed, you can rely on SunFish HR software.

How is SunFish HR going to help your company dealing with loans?

As we already acknowledged that some companies provide their people with loans facility. There are many benefits that both parties receive in this deal. As mentioned above, there are also cons surrounding the matter. Either way, you need a loan management system that can help you define the payment, interest and more. Here is where SunFish HR comes to help. The software will tackle the difficulties in calculating the employee’s payroll after loans including counting the interest, controlling cost and more.

With the advancement of technology, software SunFish HR makes the whole process easier, yet secure and reliable at the same time. Furthermore, making a loan request is as easy as filling out a simple form. You need to fill in the blank a series of information such as the type of loan, the amount of money you need, the period of repayment, and the current salary. After finishing the form, you can click “send to approver” to directly send the request to HRD and Higher Authority or “preview approver” to learn more about the authority that will consider your loan request.This is how the process begins:

  • The employee sends a loan request from loans module
  • The request will automatically send to human resources department and the higher authority
  • For a certain period of time, the request will be evaluated based on the company’s considerations for approval
  • If the request is accepted, the deduction will be taken from the employee’s salary every month

That is how the process works. Every single step can be seen through the loans module provided by SunFish HR system, so the software is helping the company to be as transparent as possible. SunFish HR is designed to accurately calculate the loans, so the track of the loans is managed easily. Conclusively, SunFish HR is the best software to help HRD manage and track employee loans.

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