Introduction to this document

Agreement for loan repayment

Our agreement for loan repayment is designed to enable you to recover payment of a loan or season ticket loan made to the employee from their wages. You must have a proper written agreement in place for repayment of the loan that covers both deductions from wages and what happens if the employee leaves employment before the loan amount has been repaid in full.

No legal obligation

Occasionally, an employee may get into financial difficulties and ask if you’re willing to give them a loan or a wages advance to tide them over until they’ve sorted out their hardship. If you do this, you need to ensure you get a proper written agreement in place with them for repayment of that loan. Use our Agreement for Loan Repayment here. You’re under no legal obligation to assist an employee in financial difficulties so it’s entirely your choice whether to do so, provided always that you adopt a consistent approach to loan applications to avoid any allegations of unlawful discrimination. Bear in mind though that an employee with financial problems is likely to experience stress, which could in turn lead to poor performance and attendance. It may also be worth suggesting that they see a debt counsellor. You can also usefully use our agreement for the repayment of season ticket loans.

Written agreement

Before you make a loan to an employee, you must draw up a written agreement for the employee to sign that will enable you to make regular weekly/monthly deductions from their wages as repayment for the loan. Section 13 of the Employment Rights Act 1996 makes it unlawful for you to deduct money from an employee’s wages unless the employee has either given their prior written consent to the deduction, or there is a relevant provision in their contract of employment authorising the deduction, or the deduction is required or permitted by legislation. The written agreement should also provide that, if the employee leaves your employment before the loan has been repaid in full, you can recover the outstanding portion of it by deduction from their final pay and expenses. If final pay isn’t enough to cover the outstanding balance, then you also need provision for them to repay this to you within a set period of the termination of their employment. All of these provisions are covered in our agreement. What’s an appropriate sum to deduct each week/month? Obviously, you don’t want the loan to be repayable forever but at the same time you don’t want to cause the employee even more financial hardship because their net salary isn’t enough to live on once the loan repayments are deducted. Therefore, make both the amount of the loan and the loan repayments manageable. Discuss this with your employee first but, as a broad rule of thumb, aim to have the sum repaid to you within twelve months. In the case of season ticket loans, twelve months is the standard repayment period.