Pay Advances/Loans

ljohnson · July 2004

I did a search on said topic and came up pretty short. Does anyone have a policy on granting advances or loans? We're dealing with a pretty small (albeit demanding) workforce in an EXTREMELY rural area (read: extremely small labor pool) and are trying to be somewhat accomodating.

We have alread changed pay periods (bi-monthly to every two weeks). We are trying to refuse to issue paychecks early, but it's pretty tough to face the sob stories on a micro level.

I know we need to keep wages above minimum wage. Can anybody help?

Thanks -

Tony Kessler · July 2004

LJohnson, I asked Mark Schorr, editor of Nebraska Employment Law Letter and an attorney in Lincoln, to address your question, and here is what he wrote. Hope it helps. tk
-----------------------------
It is more of a business management issue than a legal issue, as there is no specific statutory provision governing early wage payments. If you decide to do this, you're taking several risks -- e.g. if an advance is granted and someone quits, then it is difficult to recover the overpayments, and you also have the taxes forwarded, etc. The bigger issue comes when you advance vacation benefits before they're actually earned. That is even more problematic.

In our position, we advise against any such advances because of the administrative problems and complications that result. A small employer in a rural area may not be taking as much risk, but we would still advise against those kinds of advancements on any regular basis.

Mark M. Schorr
ERICKSON & SEDERSTROM P.C
301 S. 13th St., Ste. 400
Lincoln, NE 68508-2571
(402) 476-1000
(402) 476-6167 (FAX)
(402) 429-2400 (Cell.)
[email]schorr@eslaw.com[/email]

Don D · July 2004

I advise you to take a hard line on this one and just do not go there. Once you start this stuff, you become a bank. You, in effect, make loans, put your payroll person in the position of having to collect due notes (through deductions) and also get into the business of questionable collection practices and hunting people down who leave you and promise to pay you back. If there is a bank in the community, provide the employees with its address and tell them you are not in the banking business. x:-)

marc · July 2004

We are generally against advances of this sort, but as you said, there are sob stories. The trauma is always real to those needing the money and who cannot relate to these tough times? I know I have had some needs in this area.

Here is my approach. By the time our EEs get their paychecks, they have already put another week at work and have 40 hours of pay coming even if they quit on that day. From that perspective, I can easily see making a small advance.

I will not make an advance to an EE that is not in good standing and I will not advance more than $500, nor less than $100. I always sit down with the EE making the request and am very firm about only advancing the smallest amount I can, so there is some financial discussion I get into. Also, we offer some financial literacy courses designed to get into managing money and other household financial concerns - I insist they sign up these classes which in the long run benefit them more than any advance I make.

I also have them sign a promissory note with repayment terms, usually very short time frames involved like 3 or 4 pay periods. The promissory note authorizes me to deduct the payments from the EEs paycheck and also authorizes a lump sum repayment in the event employment ceases for any reason.

Hope this helps.

neveradull · July 2004

While we do not make loans we will allow an employee to be paid to date on wages allready earned with good reason (sob story)once a year.

Have one employee who always has a crisis on an annual basis.

E Wart · July 2004

We used to do this too. The "tradition" started when we were a much smaller family owed company and tried to help employees out. Then became expected. I finally got this stopped and became the "bad person". We have automatic deposit and employees' checks would be deposited at the usual time they receive it if they needed it when on vacation (could go to ATM anywhere to get out.) Not only did we find that sometimes employees didn't come back which caused a problem if some of the time off they were being paid isn't paid if they terminate. Also, have to be in the office on their last day of employment (can't extend employment days with time off). Also, we found that often there were gross errors when processing, especially when came back and had no check to take out their insurance or if they receive the pay one month and they should normally get it the next. Messes up 401(k) contributions, insurance contributions etc.
I have even told employees who aren't on automatic deposit that I will take their check to the bank for them if they will leave me a deposit form.
I REALLY URGE you to STAY AWAY form this. Don't start something like this if you can help it. Think of other alternatives. If you do it for one, you have to do it for all, no matter what the sob story.
E Wart

marc · July 2004

Yes, there can be significant issues when advances/loans get out of hand. One of the cornerstones of our approach is that it is entirely discretionary, arbitrary and capricious. I have turned down plenty of advance requests. Some of them are so bizarre it would make you wonder if you are trapped in some sort of Sim City video game.

That said, we have plenty of good EEs that occasionally need an advance to keep their lives on an even keel. If they are worried about getting to work because their brakes are squeeling and how are they going to come up with the $300 to get them fixed, I can help. Then they can focus on work.

ljohnson · July 2004

Gosh, marc, what's the rest of your title - aren't you something financial, too? I didn't know you guys had such hearts. Must be the HR-ness rubbing off on you. :>)

marc · July 2004

My wife regularly accuses me of being a feeler. While I won't respond to that, my CFO hat says it just makes simple business sense to eliminate productivity barriers wherever feasible. Don't go starting any rumors about me having a heart, Don D already thinks I am a soft touch.

dynamite9551 · July 2004

we too are a small office and on occasion have had employees come to us with requests for advances. we have tried to accommodate then employee when possible and have handled it by drafting a promissory note they sign, we loan them the money, interest free via payroll deduction to make sure we collect and will typically set the repayment period. for a small amount i try to collect in two pay periods (we pay bi-weekly) if that created another hardship i try for a smaller amount. we also explain to the employee we are not a bank and therefore will not make this "favor" a routine. so far we've only had a couple of employees make the request. However, take care - word of mouth spreads quickly so be ready!

Good luck

Pay Advances/Loans

Comments