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Tips on Financial Support for Employees

Summary: Tips for granting loans to employees by way of financial assistance

A recent Chartered Institute of Personnel and Development (CIPD) report highlights the high numbers of employees struggling financially, with 73% of employees reporting that their organisation offers them no financial support or advice to help them manage their finances.  It is also reported that 39% of workers are concerned about just making ends meet.

However, some employers are bucking the trend and are prepared to assist employees by, for example, granting them a loan.  Below are a few tips to take into account when an employer decides to grant an employee a loan:

  1. Writing – Record any agreement with the employee in writing prior to providing the employee with money.  Otherwise, the employee could potentially try to claim in the future that the sum of money was a bonus or a pay rise.  Ensure that the employee signs the appropriate letter/agreement.
  2. Tax – Consider whether there are any tax implications when making the loan.  If the loan is for more than £5,000 this is likely to be a taxable benefit and tax advice should be sought on this.  If the loan is written off at a later date (ie the employee no longer has to pay the sum back) then this is also a taxable benefit and tax advice should again be sought.  The employee’s responsibility for any tax should be confirmed in writing to the employee prior to granting any loan to the employee.
  3. Consumer Credit Act – Consider whether the Consumer Credit Act applies to the loan.  In most cases, loans to employees will be exempt from the onerous restrictions set out in this Act.  The loan should be exempt so long as:
    • it is offered to the employee in the course of their employment; and
    • the rate of interest is low (no more than 1% above a particular bank’s base rate) or there is no interest payable.  The interest rate (or the fact that no interest is payable) should be confirmed in writing to the employee.
  4. Repayment – Clearly set out the terms of repayment.  If the repayments are to be deducted from the employee’s salary, the amounts and length of time of these repayments should be clearly set out in writing prior to the grant of any loan.  It would also be advisable to specify that the full amount of the loan is immediately repayable should the employee leave the employer for any reason.

So long as the above is followed, it should be relatively easy for an employer to assist their employees financially by providing loans, if the employer has the cashflow to offer this assistance.

For more information about financially supporting employees or if you would like a letter to send to an employee to whom you are intending to grant a loan, please contact a member of the Floyd Graham & Co team on 01604 871143 or fgmedia@floydgraham.co.uk.

This update is for general guidance only and does not constitute definitive advice.

Updated: by FG Solicitors
Call us on:  0808 172 93 22

TIPS ON FINANCIAL SUPPORT FOR EMPLOYEES

Summary: Tips for granting loans to employees by way of financial assistance

A recent Chartered Institute of Personnel and Development (CIPD) report highlights the high numbers of employees struggling financially, with 73% of employees reporting that their organisation offers them no financial support or advice to help them manage their finances.  It is also reported that 39% of workers are concerned about just making ends meet.

However, some employers are bucking the trend and are prepared to assist employees by, for example, granting them a loan.  Below are a few tips to take into account when an employer decides to grant an employee a loan:

  1. Writing – Record any agreement with the employee in writing prior to providing the employee with money.  Otherwise, the employee could potentially try to claim in the future that the sum of money was a bonus or a pay rise.  Ensure that the employee signs the appropriate letter/agreement.
  2. Tax – Consider whether there are any tax implications when making the loan.  If the loan is for more than £5,000 this is likely to be a taxable benefit and tax advice should be sought on this.  If the loan is written off at a later date (ie the employee no longer has to pay the sum back) then this is also a taxable benefit and tax advice should again be sought.  The employee’s responsibility for any tax should be confirmed in writing to the employee prior to granting any loan to the employee.
  3. Consumer Credit Act – Consider whether the Consumer Credit Act applies to the loan.  In most cases, loans to employees will be exempt from the onerous restrictions set out in this Act.  The loan should be exempt so long as:
    • it is offered to the employee in the course of their employment; and
    • the rate of interest is low (no more than 1% above a particular bank’s base rate) or there is no interest payable.  The interest rate (or the fact that no interest is payable) should be confirmed in writing to the employee.
  4. Repayment – Clearly set out the terms of repayment.  If the repayments are to be deducted from the employee’s salary, the amounts and length of time of these repayments should be clearly set out in writing prior to the grant of any loan.  It would also be advisable to specify that the full amount of the loan is immediately repayable should the employee leave the employer for any reason.

So long as the above is followed, it should be relatively easy for an employer to assist their employees financially by providing loans, if the employer has the cashflow to offer this assistance.

For more information about financially supporting employees or if you would like a letter to send to an employee to whom you are intending to grant a loan, please contact a member of the Floyd Graham & Co team on 01604 871143 or fgmedia@floydgraham.co.uk.

This update is for general guidance only and does not constitute definitive advice.