Most of the companies today offer benefits like loans and advances to employees. Such provisions help the employees meet their financial requirements with ease, in case of emergencies and difficulties. The loans offered by employer are much more favorable than the regular bank loans in terms of repayment tenure, interest rate etc. However, lending loans to employees are often associated with pros and cons. Let us site a few here in this blog.
- Enhances loyalty in employees
Any type of financial assistance to employees may give them a sense of security which fosters loyalty in them. They tend to repay the loan amount within a stipulated time having complete faith on their employer, and thus better commit themselves towards their responsibilities.
- Helps focus on work efficiently
Though work and life are different and are treated separately, disturbances in personal life related to finances can distract an employee and vice versa. When they are supported financially by their employer, they are able to resolve money matters effortlessly resulting in improved focus on work.
- Protects either parties
Since the repayment terms are set in advance, employees agree to return/deduce the amount as applicable within/on a certain timeframe. The employer too can ensure to recover the loan amount (in segments or in full) at a favorable rate as decided by both the parties.
- Repayment might prove to be stressful
In case the employee to whom the loan or advance is being lend faces financial challenges regularly and is unable to meet the routine expenses like rent, expenditure on household utilities etc., then the loan installment will only add to the employee’s burden and would make the situation all the more stressful.
- Lending loans drives tax obligations
If the procedure of lending loans is not carried out properly, tax obligations may follow for the employer. All aspects of repayment, rate of interest and time period must be clearly defined and should meet the federal laws in order to avoid penalties and other obligations.
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