Many employees when faced with emergencies or difficulties, ask their employers for a loan. Asking an employer is always a good idea for employees. Employers’ terms and conditions are favorable in most of the cases as compared to banks, An employee load management system can add value to your HR system, as loan management has its share of pros and cons:
1) Loans Can Foster Loyalty
Once employees receive some kind of financial assistance from their employers, they are likely to stick around for a long time. They acknowledge the fact that employer trusted them and place the faith on them. This makes them more committed towards employers and their job. This may help in retaining the employees.
2) Loans can increase employee productivity
Lending financial help and helping employees work through the financial difficulties can help improve the overall productivity. In the absence of any help, employees may find it difficult to cope up with the situation and concentrate on the tasks assigned. Any kind of financial assistance from the employer may motivate him to work harder.
3) Repayment May Become a Source of Stress
Every situation has its two sides. In case the loan is to meet the daily expenses, then extending a helping hand can do more harm than good. Repayment can be a stressful affair for employees in this situation. The employee may need financial counseling than the loan disbursement.
4) Loan Decisions May Create Discrimination Concerns
A loan disbursement system needs to be in place before extending any financial help to the employees. It is important to review their current financial situation and assess their ability if they would be able to repay the loan or not. Moreover, it would also be wrong on the company’s part to extend help to one employee and not to other. This may also lend the company in discrimination law suits. A right employee loan management system enables you to take the right decision and makes sure the reasons for extending help or refusing the loans are documented properly.
5) Increased Employer Tax Obligations
A right employee loan management system assists employers to disburse and structure the loan correctly so that tax obligations do not increase. Loan terms need to be clear and concise and rate of interest is in accordance with the bank rates. If procedures are not followed correctly, an employer may face penalties or tax obligations.
6) Setting Terms In Advance May Serve As Protection
Employee loan management system helps in setting up the right and favorable repayment terms and conditions beforehand. A portion of the paycheck can be deducted automatically at the agreed terms and conditions until the loan is repaid.
Enabling employees through extending financial assistance may be a good idea for some and not for some. This may also vary according to the health of the company and the financial literacy of the employees asking for the loan.
A right employee loan management system enables an organization to look into all applicable laws and make sure that extending the loan will not harm your business in any way.