Employer loans are the practical and often cheaper alternative to bank loans. A loan from the employer can be granted to you as an employee under company social benefits by your employer. Small and consumer loans are just as possible as loans for the purchase of real estate. As with other loan agreements, the sum can be individually agreed and fixed here. Small amounts in excess of a few hundred dollars to bridge financial bottlenecks are particularly popular with personal loans. The term can also be individually contractually agreed – unless it is a real estate loan, the terms are usually a maximum of 84 months.The monthly installments are usually offset directly against the wage or salary payment by the employer for a personal loan: the installment is simply retained from this payment.
Who is entitled to an employer loan?
There is no legal entitlement to an employer loan. Personal loans are more common in larger than in small companies, since the financial situation of the employer must of course allow loans to be granted. However, if an employee receives an employer loan, theoretically, according to the principle of equal treatment, all other employees are also entitled to a loan from the employer. Of course, individual reasons can still speak against it, for example if the employee already has high debts.
There are also some special employee groups that are generally excluded from employer loans in most cases. It refers to
- Probationary staff
- Temporary employees
Advantages and disadvantages of an employer loan
The cost of a loan from the employer is often cheaper for the employer than loans from the bank. On the one hand, the interest rate can be significantly lower, on the other hand, employers in most cases do not charge any fees for the conclusion of a contract. However, the interest rate advantage must be taxed as a non-cash benefit. Another advantage: Employers generally do not require additional security from the employee for a personal loan. You already have security in your hand thanks to direct access to wage payments.
The advantages for the employee are, among other things, employee retention: by granting a personal loan, employees feel more obliged to work longer for this company. Of course, the interest income should also be mentioned as an advantage. Add to this the fact that employers generally have a lower risk of default on their employer loans than banks would have for comparable loans. After all, they themselves influence the duration of the employment relationship and also pay the salary from which the loan installment is ultimately paid.
What should be considered when paying tax?
Like any other loan, you may also be able to deduct the employer loan against tax depending on the specific use. What you must state in any case when filing your tax return: the interest advantage. If the difference between the interest rate for the employer loan and the market interest rate results in a difference of more than USD 2600 in total, you must tax this monetary benefit.
What happens to the personal loan when you leave the company?
Usually, the contract for the employer loan stipulates that termination of the employment relationship does not terminate the loan agreement. However, it is possible that the interest rate increases when the company leaves the company (to the usual bank interest rate). For your own security, you should make sure that the continued existence of the loan is contractually agreed even after you leave. Otherwise, the employer may actually request immediate repayment after you leave.