Employees’ Christmas debts and pay advances

Santa’s elves could have been leading parents (and others) astray over Christmas. CIPD report that one employee in four now has worry over debt and one in five is losing sleep over it. Christmas can come with a price.

Anxiety over debt damages health, breaks up families and (the CIPD research shows) affects employees’ ability to do their jobs. Only a few life events can be more stressful than having the bailiffs turn up, or your home repossessed.

Any employer faced with a desperate employee is likely to want to help. This blog is not intended to advocate that you provide a pay advance. One of my bosses once reminded me that I was a Personnel Manager, not a Bank Manager. But these are some of my thoughts if you are inclined to advance pay to an employee.

You are almost certain to be the last resort
The employee is likely to be mired in debt with bank loans, credit cards and pay day loans. You are being asked, in effect, to provide another pay day loan.

Limit what you loan
While I have made pay advances in the past, I’ve always limited it to the employee’s net pay at the next pay day. There is no particular logic behind this, but I do know of employers who have loaned many thousands of pounds that will never be repaid. Incidentally interest-free loans are an employee benefit and may have tax implications; for example if the loan is £10,000 or over.

Make sure you have a repayment plan
The approach I’d advocate is to deduct an agreed sum at each pay day until advance is repaid. You need the employee’s explicit authority to do this. That means in writing and, preferably, a witnessed signature from the employee so that there are no misunderstandings.

Make sure the employee has a repayment plan
There is too much (dubious) advice out there. Directing the employee to the Citizen’s advice bureau may be the best option, although I notice that moneysavingexpert.com also offers advice that may be more immediate. It might be better to sit down with the employee (if you have the time) and plan their repayment with them. I would not assume that the employee will tell you everything, but this approach has worked for me. You may want to require a repayment plan as a pre-condition of the loan.

Consider long term strategies
You can direct the employee to appropriate sources of help and advice.

Money problems can arise because individuals find it difficult to understand financial principles or make decisions with inadequate information. The Citizens Advice Bureau provides extensive information on debt and money on their website.

Lack of personal confidence can also lead to money difficulties, for example anxiety over discussing money with a partner or to resist pressure for expensive Christmas presents so children can keep up with their peers. There are various forms of assertiveness training, CBT or mindfulness opportunities available. It must be worth encouraging an employee to seek out such opportunities, or perhaps encourage them by seeking opportunities on their behalf. Please contact Employer Solutions if you would like help in this.

There is also more detail, help and advice available from the CIPD here.

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