Employee Loan Policy

This policy defines the criteria for employees to seek and avail of a loan from the organisation for their personal needs. Many organisations provide internal loans for their employees. These loans come with a certain agreement, including rules and regulations that both parties mutually agree on.

This policy template is available for download in Word format.

With this Employee Loan Policy template, you can:

• Provide clarity about the scheme, including government regulations and taxation
• Provide guidelines on participation, repayment and documentation
• Explain eligibilities for this benefit

In just a few minutes, you will be able to create an employee loan policy. This policy covers rules to be followed with respect to:

• Standard guidelines to employees irrespective of grade/level
• Responsibility of the company as well as the employee
• Documentation and procedures for such application

Employee Loan Policy

Objective

The < Company Name > believes in supporting its employees in times of dire need of funds and support for their personal emergencies. For this purpose, an Employee Loan policy is established to enable staff members to avail a loan. This also defines the payment terms, eligibility, etc.

Scope and Applicability

This policy applies to all employees of < Company Name here >.

This policy is owned by < Name of the Person > and reachable @ < Contact Number > and < email address >

Policy / Process

Eligibility of Loan

• Employee loans are limited to < Specify purpose. For eg: For medical emergencies, marriage or purchase of a vehicle>.
• All employees who have completed < xx Number > years of service in the organisation are eligible for an < interest-free loan / loan with xx% p.a. interest > subject to availability of funds.
• Any kind of tax liability applicable on the loan amount will be borne by the employee.
• The basic criterion for eligibility is a genuine verifiable purpose for which the employee has applied for a loan.
• Company reserves the right to approve / reject a loan application with or without assigning any reason whatsoever.
• No precedence of loan sanctions from the Company to other employees will give a right to the applicant to demand a loan from the Company.

Eligibility Amount and Repayment

• The maximum amount to be sanctioned as a loan will be equivalent to < xx months > gross salary of the employee.
• Application for a higher amount will be subject to approval from the HR and < Management/Finance Head >, depending on the situation and circumstances under which the loan has been applied for.
• Loan amount will be credited to the employee’s salary account or a cheque will be issued in the name of the employee. Under no circumstances will the amount will be paid to any third party.
• The loan will be repayable within <Specify tenure. For eg: 12 / 24 months> in equal monthly deductions from salary.
• The deduction of installments from salary will start from the month subsequent to which the loan has been sanctioned.
• If an employee desires to repay the balance loan amount either in full or in additional installment(s), the employee must inform HR, who will facilitate the repayment.
• No penalty will be charged for prepayments.
• Employees can neither apply for multiple loans at the same time nor for a fresh loan while repayment of an earlier loan is in progress.
• Employees can apply for another loan only after completion of one year from the complete repayment of an earlier loan.
• Loans sanctioned for a specific purpose cannot be utilised by the employee for any other purpose without the written approval of the Management.

Procedure

While Employee Is in Service of the Organisation

• The applicant has to fill out a loan application form.
• The duly filled form is forwarded to the HR department with the respective Department Head’s comments.
• The HR Department verifies the eligibility amount and forwards the application to < Management/Finance Head > for approval.
• The sanction / rejection of loan is at the discretion of the <Management/Finance Head> and is conveyed to the employee by the HR department.
• In the event the loan is sanctioned, a Loan Agreement has to be signed by the employee prior to disbursement of the loan.
• Finance team will then process the loan payment as defined in Clause # 4.2.

While Employee Leaves the Organisation

• If an Employee leaves the organisation before repayment of the full loan amount, the employee is liable to pay the balance amount by cheque in the name of the Company before being relieved.
• In case the balance amount is not paid by the employee before being relieved, the amount will be recovered from the final settlement amount.
• The Company reserves the right to approach a Court of law in the event a full refund of any dues is not received from the employee
• The Company also reserves the right to withhold any testimonials, documents and certificates owed or belonging to the employee in the event of any non-recovery of dues.

Special Circumstance and Exception

Any Deviation from this policy has to be approved by the Management. Any change to the policy has to be approved by the Finance Team.

Non-compliance and Consequence

Violation of this policy is subject to disciplinary action, up to and including termination.