Employee Advance not paid back as promised...
HR Mouse
53 Posts
Here's the scoop. We hired an employee back on April 17, 2007. On June 08, 2007 her boss very generously gave her an Employee Advance of $2,500.00 which was agreed to be paid back $250.00 at a time (from each bi-weekly paycheck), but the repayment deductions through payroll would not begin until after her Maternity Leave (she had a baby on June 21, 2007 & returned to work sometime in September 2007). So fast forward to January 2008 - the employee decides she wants to quit & gives 3 days notice on Monday - January 28th. Her boss e-mails her asking about the repayment of the balance on her Advance & she says she will pay is back in full on 02/15/08. She comes in on Tuesday - January 29th, stays until Noon & goes home and sends her boss an e-mail stating she is not returning. So come February 15th & we do not hear from her nor receive any kind of payment (mailed or otherwise) - I'm not too surprised, but disappointed. The balance she still owes is around $1,200.00. Her boss wants to repay the balance herself since she feels responsible due to the fact that she is the one who approved the advance. I told her that we need to send a collection notice/letter to her demanding she pay the balance due. The Employee Advance Agreement she signed only states the following, "If the employee is no longer employed at any time during this loan, any outstanding balance will be deducted from final check." That deduction did not happen since the balance due was more than her final paycheck amount. So after her final paycheck was run I went into the payroll system & noticed that her deduction for the advance was deleted from her file and her tax exemptions were changed (she had access to the payroll system). She obviously changed these things before she left and were not "caught" until after she had left the company - we called our payroll company & unfortunately there is no way to tell WHO made the changes - just the date & time the changes were saved. So regardless of that I still feel she owes the company the balance and we should collect on it. Her boss still feels so guilty and offered me $500.00 today to "make a payment on her responsibility". Although I applaud her loyalty I need a good way to let her know she should sit tight until we've exhausted all other actions.
Does anyone have the "right & best" verbiage for me to use in a Collection Letter sent to this person's house? The company is more than generous when it comes to Employee Advances and has NEVER had a problem with an employee paying it back in full, when promised. Even when we've had an employee leave the company with a balance due we have never had trouble. Any ideas on how long we should give her to pay it in full? Do we mention a lawyer might get involved later (not something the company wants to do given the small amount owed & the large cost of a lawyer) or skip that? Oh, and YES - the form was revised back in November sometime to include a clause saying the loan must be paid in full upon leaving employment - no exceptions. Not in those exact words, but you get the idea.
Comments
A collection letter from the Company has no value in my opinion. First try a nice letter and follow up with a phone call. Make sure the letter states a date by which you expect the loan repaid but don't say anything concrete about what you'll do if the loan is not repaid. If that doesn't work, I have found that there is nothing more powerful than receiving a subpoena, even for a small claims case, but it's a real pain to follow up on and collection depends a lot on the state in which the action takes place. A lot of people contemplate this but few really do. For $1,200, I might do it. If you do opt for this extremely tedious and lengthy process, don't threaten to sue, just do it.
Barring that, check with counsel and see if the loan note is enforceable. if it is, strike a deal with a collection agency who will go after the deal. You wont get everything back, but she'll have a loan in collections. Ask counsel what is required to consider the loan in default and when you have met the criteria, get it reported to a credit bureau..
If the loan was not taxed, make sure they receive a 1099 to boost their taxable income and to give the Company something to write off.
I would take the agreement to a lawyer. I am not sure that agreement is legally enforceable past what has already been paid through payroll because although it was a loan and she did start making the payments, the only recourse in the agreement that the company has in writing is the final paycheck deduction. And even that couldn't take away minimum wages plus any overtime owed under FLSA. Someone needs to reword the agreement to take into account the situation where there is not enough left in the last check to pay off the balance.
But you can always threaten a small claims court suit or sending the amount to a collections agency. Doesn't mean you will win or that you will ever see the $s back unfortunately.
I would definitely 1099 the difference as wages at a minimum. But I think you will have a hard time collecting it otherwise unless she is scared of court/collections.
Our motto here at our company is never lend what you ever expect to get back. So we don't do advances, loans or any such financial transactions.
I agree on taking the letter to a lawyer, and if it is enforceable, using a collection agency to get the money back. If you use a collection agency, it will go on her credit report, which she will have to explain to any lender or employer that checks her credit report in the next 7 years. It will also harm her (if she has good credit) until she pays it off.
You might also want to have a lawyer review or draft your "Employee Advance Agreement" so that in the future you are covered on all bases...
I would like to say that reporting it to a collections agency is enough to scare the person. However, in this day and age....it doesn't seem to be enough. I work for a collection agency and see everyday what people are willing to leave on their credit. It sounds to me like, if she was willing to go into the payroll system and make those changes and take the chance of "getting caught", she is probably not really worried about having it on her credit. You can try collecting, but I would say write it off as a lesson learned. I can assure you that she will have an "explanation" for how it is on her credit...."someone stole her identity", "mistaken identity", etc. I do credit checks everyday and hear it from people who are explaining away their credit.
Our company has a policy against making loans to employees unless they show a hardship of some kind...power being turned off or eviction notice. It must be a serious event for them to be able to get the loan and repayment must begin immediately with the following check, not months later. You may also want to put a time limit on how soon after beginning work someone can request a loan.
Credit reports are going to matter more and more.
As they tighten up on money to slow inflation, and as we attempt to dig out of the sub prime mortgage hole faster than the hole deepends, good credit is going to be key to getting spending power.