[Question] Documentation required when advance taken on salary

[dellatjie]

Morning guys,

Just a quick question to make sure I am following the right procedures:
*When an employee takes an advance on their salary, do they need to fill out a form.
*And then, when deducting at the end of the month: I heard from a friend that you may not deduct an amount more than a certain percentage of an employees' salary. Does anyone know what that % is?

[Justloadit]

I am not sure if you can issue a loan, even if it is a zero interest loan, if you are not registered as a financial institution. This was phased in with the NCA. It must also be declared on his/her wages, if it is a zero interest loan, as SARS sees this as a benefit to the employee.
Secondly, giving loans to employees is a bad practice, as the employee then has a hold over you when you wish to dismiss him, and his loan amount exceeds what ever is due to him.

I have long ago stopped this practice, and was pleased when it was introduced with the NCA, as it became a logistical nightmare for the pay officer. Anyway at the time I did make loans, on principal, the loaned amount never exceed the then current leave and bonus amount was owing to the employee. This ensured that the employee had no hold over the company in the case he/she decided to resign.

[SSS100]

I do not know the % of such
But, generally I do not give an advance more that half the basic
Also, I make the employee sign for the advance with repayment terms, normally full deduction on next pay or at most 2 installments

[Dave A]

I am not sure if you can issue a loan, even if it is a zero interest loan, if you are not registered as a financial institution. This was phased in with the NCA. It must also be declared on his/her wages, if it is a zero interest loan, as SARS sees this as a benefit to the employee.

The NCA does allow for staff loans, and you'd have to be a pretty big operation to be required to register as a credit provider on the basis of staff loans alone.

Secondly, giving loans to employees is a bad practice

It certainly must be approached with caution, and I strongly suggest you put a clear company policy in place on the issue.

Personally I apply the following guidelines:
The repayment schedule must be agreed between employer and employee before the loan is granted.
I will not advance more than 50% of the employee's basic monthly salary if a permanent employee.
I will not advance more than 50% of what is already due for time worked if an employee under probation, temporary, etc.
Repayments may not take longer than 6 months.
Repayments should not exceed 10% of earnings.
No further advance will be given until 3 months have passed since the last loan was paid off (except for extreme emergencies).
The employee must have a valid reason for requiring the loan (for example a deposit on a TV does not count as valid - for that I expect the employee to save first ).