Cash Advances &/or Employee Loans

KHelgeson

Please provide feedback regarding whether or not it is a general practice to allow employee loans &/or cash advances. I find myself in a dispute with a colleague who tells me that 90% of companies offer this to their employees - I would argue to the contrary that only 10% might offer this as a benefit.
As the Corp Director of HR I want to limit expenses and frown on this type of benefit for my current employer.
Thank you in advance for your feedback.

Down_the_Middle

As an employer of more than 1700 employees, we offer "early paychecks" as an accommodation for individuals in a real jam. It's done with discretion and infrequently, but when we do it, it's necessary and much appreciated by the employee. I would avoid the LOAN issue like a hungry shark. Loans are risky, require some sort of promissory note, interest,(most states have usury laws governing this) etc.....and are not consistent with my industry (healthcare).

If all else fails, we try to refer the employee to a local bank for the necessary cash advance.

System

I don't know how common it is, but I'd hate to be the person who has to administer it. If you limit it to hard-luck cases, someone will have to make some very tough decisions about who's eligible. (Some years ago, we collected money for a co-worker whose home burned down. A few days later, this poor co-worker plopped down $10 in an office betting pool.)

If you don't limit it to hard-luck cases, you would encourage a few irresponsible employees to spend even more foolishly. And big money troubles can spill over into work. (I'm a big fan of the book Financial Peace by Dave Ramsey, who advocates living within your means. Not that I follow his teachings strictly. But I digress.)

State law might restrict paycheck deductions. And maybe the FLSA, too, if the deductions take the employee below minimum wage. And, sooner or later, you'll have an employee who can't/won't pay back the loan or advance. Maybe he quits before paying it back.

I wonder if you could achieve most of the same goals with other assistance like disability insurance, EAP, referral to government agencies, etc.

James Sokolowski
Senior Editor
M. Lee Smith Publishers

bsa

Our policy is absolutely no loans or cash advances. When the company was very small and very new in the business -- it was a practice that the president did. He used his very own "promissory" note and got burned. Thus -- it won't happen again. About the only thing we can offer to an employee in a financial bind is distributing a regularly scheduled paycheck a day in advance.

Theresa Gegen TX

Most companies that offer this type of thing, that I know about, offer the loans pursuant to some type of 401k or retirement. The loans are secured by the retirement, and have specific pay back requirements. This is a highly regulated area.

Just offering loans to employees is a bit unusual in my experience. I also know of some small business owners who have gotten burned doing it (loan never repaid, and employee quits. I do not think it is the norm at all.

Good Luck!

Anita

When I first came to work at this company, it was very small and run by the President and founder. He allowed employees to take payday advances, after all they were like family.

After I was here a short time, I put a stop to this. The problem was that the same people every payday would need an advance as we had deducted their previous advance from that paycheck.

I told the President that it was taking up to much of my time, costing the company money, and that we really weren't in the banking business.

I said that I would put out a memo informing all employees that by the end of the following month all payday advances would be stopped and all outstanding balances would be deducted from their checks.

I found as I went through the records (what little they had) that some people owed money from previous advances that had never been deducted. So of course I made up a schedule of payday advances and paybacks so that I could show the employee where they stood, because they KNEW they had paid them back and I was wrong.

Of course, I was not a popular person at this point, but it actually worked out for the best. It made the people who every payday were in getting advances learn to budget their pay checks better or find another way to get cash. We have since grown and have 3 other locations, so I am very thankful that I was allowed to nip the advances when I did.

Gillian

I don't know if is 10% that do or a little higher but it is closer to your estimate than to your friends. Perhaps the difference revolves around "loan" or "flexibility short of a loan". If the issue is flexibility then I think that more organizations do something than the 10%. We provide an opportunity for an employee to get an advance on a paycheck twice a year to be paid back out of the next paycheck. I know that technically that is a loan and for us in California, I know that if one of these individuals quits after receiving the "advance", I legally can't deduct it from the next check. That hasn't happened in two and a half years. We made a conscious decision that the benefits of this in employee morale was far greater than the risk. If I worked in an organization with a lesser educated work force and with high turnover I wouldn't have made the decision.

Gar

We're a local government in NC and we don't do it. Moreover, we frown on supervisors loaning money to their employees. We will advance, subject to pay back, hours of sick leave to employees in need.

KHelgeson

I would like to thank everyone for their feedback - the details are exactly what I'm looking for.

makmhic

We are a small organization (27 employees). We do provide loans but only for the purchase of a computer. The employee has to be employed one year, the loan can't exceed $3,000 and must be paid off according to a payment schedule. The employee signs an authorization to deduct the payments from his/her paycheck. The employee also signs an authorization to deduct the entire amount of the balance of the computer loan if he/she terminates. If last paycheck is not sufficient to cover the cost of the computer loan balance, the employee is given a choice of making payments or returning the computer to us. We've been doing this since 1996 and it has extremely well. We have better educated employees because they learn different programs and software on their own time at home.