Employee Loans: How to Get a Loan at Work

Employers can offer employee loans in various ways, either directly from the workplace or through a third party.

Employee loans can be an alternative to borrowing money from a major bank or an online lender. Here, we provide an overview of the types of employee loans your employer might offer, including transportation loans and salary advances.

What Are Employee Loans?

Employee loans are a type of loan you can get from your employer. Not all employers allow you to borrow money, but some can offer certain types of loans to their employees.

Employee loans can take various forms. For instance, a company might offer interest-free loans to help employees pay for a seasonal ticket so they can commute to work. Employers might also partner with a service provider to offer employees a salary advance.

Employers can offer loans up to £10,000 without any tax or national insurance charges.

If you're an employer, it might be beneficial to seek professional advice if you're unsure about the tax implications of offering employee loans.

Types of Employee Loans

Here are two common types of employee loans that might be available from your employer:

Season Ticket Loans

As the name suggests, this is a way for your employer to help you pay for a seasonal public transport ticket for your commute to work.

Purchasing an annual ticket can save you money compared to buying weekly or monthly tickets. However, you might not be able to afford the upfront cost of an annual ticket. This is where your employer might assist.

Not all employers offer season ticket loans, but it's relatively common to see them as part of a benefits package. You should check with your employer to see if they provide them.

The process for applying for a season ticket loan can vary between employers. You might need to get a quote for the ticket's cost and then fill out an application form with the relevant details. In this approach, your employer will approve your request and give you the money to buy the ticket. Alternatively, some employers might buy the ticket on your behalf.

Some employers and service providers also allow you to request a season ticket loan online, which is then sent directly to your employer for approval.

To repay the loan, your employer will deduct payments from your salary each month. Usually, these loans are interest-free, so spreading the cost this way doesn't cost you more than the ticket's price. Typically, you'll need to repay the total ticket cost by the time it expires (usually within 12 months for an annual ticket).

Salary Advances

Some employers work with lenders to offer employee loan services. This might take the form of a personal loan at potentially competitive rates, typically involving a credit check. Repayments will be deducted from your salary each month (after the usual tax and national insurance deductions).

However, some employers also offer an employer payday advance scheme, which has become more popular in recent years—especially in the context of the cost-of-living crisis.

Under this scheme, the employer doesn't offer a direct loan but works with a provider to allow you to access a portion of your salary in advance. This amount will be deducted from your next paycheck.

You can usually borrow up to about 50% of your accrued salary in advance, although this will vary between providers and employers.

Payday advances are intended to cover short-term, one-off costs and can be a useful alternative to high-cost credit. However, you need to ensure you'll still be able to meet your regular expenses with your next paycheck once the advance amount is deducted.

If you're continually taking a payday advance to make up for a shortfall in your income, you risk ending up in a borrowing cycle where you're constantly using an advance to cover expenses.

Payday advance providers don't need to conduct a credit check before allowing you to withdraw funds, and it won't appear on your credit record.

Bear in mind that payday advance schemes usually charge a small fee for each withdrawal for their service. Although these fees might be small, it's essential to consider them in the context of the amount you're withdrawing. Remember that small fees can add up. For example, if you withdraw £10 but are charged £1.49, this fee is high considering the amount you're withdrawing.

To find out if your employer offers a payday advance scheme, you can ask them directly. Alternatively, service providers may list the employers they work with, so you can check if your employer is listed.

Pros and Cons of Employee Loans

There are some clear positives to obtaining employee loans, including:

• Borrowing Small Amounts: You might be able to borrow a few hundred pounds if you get an unexpected bill, which you might not be able to obtain from a bank. Borrowing these small amounts usually means turning to a payday lender or overdraft, which can be expensive borrowing methods compared to an employee loan.
• Low Interest Rate: The overall cost of borrowing from your employer is likely to be small if it costs anything at all. For instance, a loan to purchase a seasonal train ticket shouldn't come with any interest charges.
• No Credit Checks: Employee loan providers usually don't conduct a credit check, meaning your credit record won't be affected. However, this means you're responsible for ensuring you can repay the advance.

However, salary advances and employee loans from the employer can have downsides, including:

• Limited Borrowing Amount: If you need to borrow a larger amount—for example, to undertake home renovations—employee loans are unlikely to be a suitable option.
• Payday Advance Fees: Although you might not be charged interest, payday advances are not entirely free.
• Unregulated Providers: Because payday advances aren't a form of credit, these providers don't need to be regulated by the Financial Conduct Authority. This means you won't be able to complain to the Financial Ombudsman Service if something goes wrong.
• Risk of a Borrowing Cycle: If you're using payday advances to cover expenses, less money will be deposited into your account next time you're paid because the advanced amount will be deducted from your salary. If this means you'll struggle to pay your expenses that month, you might need to borrow again. Seek debt help if you're finding it difficult to cover your expenses.

Role of DocSuite HR System

The DocSuite HR system manages human resources within an organization, including employee loan requests. This system allows employees to submit loan applications easily and enables HR management to monitor and process these requests effectively. It can also generate reports on granted and pending loans according to company policies.

Key features of DocSuite HR in managing employee loan requests include:

Application Submission:

The system allows employees to submit loan applications electronically, making the application process simpler and more convenient.

Status Tracking:

 Employees can track the status of their loan applications, such as whether they are accepted, rejected, or currently being processed.

Request Processing:

The system enables HR management to process loan applications quickly and efficiently, considering the organization's internal policies and procedures.

Report Generation:

 The system generates periodic reports on granted and pending loans, assisting management in decision-making and trend analysis.

Compliance and Tracking

The system helps ensure compliance with company policies and legal regulations related to loan granting, providing mechanisms to track and monitor the loan process.

Documentation and Records:

The system facilitates the documentation and storage of loan application information and approvals, making it easier to access later for auditing and review purposes.

Improving Efficiency:

Overall, the DocSuite HR system enhances the efficiency of managing employee loan requests, reducing manual and paper-based processes.