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Staff Loan

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A staff loan has been provided to a staff member for less than £10 000.  Staff memeber is due to leave current employment.  Two questions.

1 - can we deduct the outstanding balance even if it leaves the employee with no salary

2 - can the employee keep paying installments after he has left our employment

 

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By DJKL
23rd Apr 2019 12:38

I. Unless express authorisation for deduction of such amounts within the employment contract I do not believe such deductions from salary are legally competent, there are very strict rules governing what an employer may deduct from salary.

https://www.gov.uk/understanding-your-pay/deductions-from-your-pay

2. Hopefully yes though chances of full recovery may recede once they leave.

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23rd Apr 2019 12:44

Surely for such a significant sum there was some form of written agreement, including what to do if the employee leaves? If not it looks like very bad management, and a high risk of losing out.

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23rd Apr 2019 12:48

You just need to refer to the comprehensive loan agreement that was put in place when the loan was made.

You'd have to be a bit "daft" to lend money without a proper agreement, wouldn't you!!

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By DJKL
to Accountant A
23rd Apr 2019 12:59

I suspect that might also require a change in the employment contract, not convinced even if a standalone loan agreement was executed that an employer can make unilateral deductions from salary without these being expressly permitted within the employment contract, one also needs to consider minimum wage rules etc.

Suspect more a legal question rather than an accounting one, I certainly scurry to our employment lawyers, whose motto seems to be "Budget advice is not our forte", when out the norm employment issues arise here; getting things wrong can be expensive.

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to DJKL
23rd Apr 2019 13:10

Quote:

...whose motto seems to be "Budget advice is not our forte".

Catchy. Would they sue if I plagiarise this?

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By DJKL
to Tax Dragon
23rd Apr 2019 14:18

The above is my take on their charging structure, and I will caveat it by saying that their Property team, who were our main point of contact, were not OTT, it was when one used their other teams like corporate /employment etc, where you did not supply recurring work, that fees started to rise.
(Like paying a bank's solicitors re a financing deal, you are not their client so they tend to be a tad eye watering re the fees they bill the bank that you the bank's customer pay-why getting a front end quote is very important)

At one time they were a mainly Scottish law firm who were affectionately known up here as "Delay, Worry and Expense" (Maclay, Murray & Spens) but they are now a UK (nay world) player. Some very smart solicitors but they are now moving outwith our budget and we tend these days to use smaller mid tier firms.

They are a good firm, and their advice tends to be very sound, but when we used them re an employment issue a while back I came to the conclusion that if at outset I had paid the member of staff in question a sum equal to 50% of the legal fees we paid to advise re the issue he probably would have been more than content with the issue.

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to DJKL
25th Apr 2019 11:18

there might be P11D implications - but it is really down to how the loan was repaid - eg was it salary sacrifice or net deduction?

Normally for eg season ticket loan, the amount is deducted in instalments from net pay and so any remaining amount can be deducted from final pay with the balance owed being the employee liability to refund the employer.

If no interest was added at the HMRC rates then sounds like it could be a benefit for P11D declaration as a cheap or interest free loan has been made. I see in fact your new post that shows interest is added so no P11D declaration required.

If the loan was made conditional on the employee remaining in employment, it is possible that the amount outstanding could be recovered in part or full from final pay. Again depends on what the agreement stated and how the loan was repaid.

Much depends on the fine detail.

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23rd Apr 2019 13:03

What does the agreement that both parties signed say?

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By LDZ
23rd Apr 2019 13:09

Agreement was done. With a interest of 3%. Employee now claims we can’t deduct due to leaving them in a financial situation.

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to LDZ
23rd Apr 2019 13:16

Quote:

Agreement was done. With a interest of 3%. Employee now claims we can’t deduct due to leaving them in a financial situation.

Does the employee think they can walk away without repaying the debt? Whether the loan can be recovered from wages is one thing but the debt is the debt. Presumably the employee is aware that they remain liable and that you can take legal action if they don't repay.

What did the agreement say about repayment?

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to LDZ
23rd Apr 2019 13:18

This sounds like a commercial-ish loan agreement with repayments deducted from salary as an administrative convenience.

Does the agreement say anything about what happens if the employee leaves with a balance outstanding?

Unless it does, you probably have to continue to collect monthly repayments over the remaining term. Or you could offer a settlement to allow for a clean break

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to LDZ
23rd Apr 2019 14:38

Does it say that agreed due payment dates are dependent upon continued employment?

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to LDZ
23rd Apr 2019 15:03

Quote:

Agreement was done. With a interest of 3%. Employee now claims we can’t deduct due to leaving them in a financial situation.

What does this agreement say about him leaving your company's employ before the loan is repaid ?

You need a solicitor, not an accountant.

And, even if we were lawyers, how would we know whether the loan can be repaid when you don't tell us what's in the agreement ?

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to LDZ
25th Apr 2019 11:37

If the employee signed agreement he/she remains liable for repayment by the same method used up to the point of leaving.

If the repayments were being taken through payroll, (net deduction) then it would be normal in a final payslip to recover any amounts owed by the employee on ceasing employment. (same as for holiday over quota/season ticket etc) even if that left a £0 payslip and a remaining balance which the employee is still liable to repay.

If, however, payments were being refunded by the employee - eg standing order, then not sure 100% but I think it would have to be recovered by the same method and could not be deducted from final pay.

Still either way it would be repayable in full as appears to be a beneficial loan that is conditional on employment which ceases if the employee leaves. That's where the actual agreement should be clear.

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25th Apr 2019 10:02

Not enough detail in the post to comment.

Could you please provide more info.

What was the agreement when the loan was set up?
How was the loan being repaid on a monthly basis?
What was the loan for that made it relevant to provide a loan to 'staff' (eg Annual Season ticket).
Was it def a loan and not an advance of salary?

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25th Apr 2019 11:19

If the original agreement states the balance will be collected from final pay, then yes. No impact on NMW as this type of repayment is allowed assuming there is a contractual agreement to collect the outstanding amount.

And yes if you want to agree to an ongoing new loan. You will need a means to collect / receive the payment. Suggest no future P11D implications as they will not be an employee and the amount is under regardless.

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25th Apr 2019 11:29

In the event the contract of employment or the loan agreement specifies recovery from earnings, and also that any outstanding balance is recoverable on termination of employment it would be 'ok' to deduct as much as possible from 'final pay'. This would be the case even if the employee were to object on the ground s/he was left with little or nil net pay.
You do need to look closely however at the T&Cs.
For example, if there is no right to recover in full (or in part) from final pay doing so would leave the employer open to a claim of unlawful deduction (and/or breach of contract). A successful claim of unlawful deduction would mean the employer returning the deducted amount and not being able to pursue recovery via a court.
If you cannot recover fully or at all from final pay do the loan terms specify how or at all whether the employee is to repay the balance? If not, I wonder whether it was a 'loan' at all...but let's not go there.
If the T&Cs permit deduction of the balance in full from final pay, what is meant by the expression 'final pay'? What about any bonus or commission entitlement which might arise weeks/months after date of termination?

Oh, and you may want to consider whether placing the employee in financial difficulty is 'worthwhile' particularly if s/he might retain connections with the employer.

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By LDZ
25th Apr 2019 13:15

FCA regulations? Because loan interest in more than base +1?

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