If money is tight, employees can borrow money from their employer instead of from a bank. Employer loans are called when the boss steps into the breach financially. The employer loan even has advantages for both sides. Here you can find out what these are and how the undertaking of credit from the employer runs as smoothly as possible - especially in the event of termination.
Employer Loan: What is it?
One usually speaks of an “employer loan”, “employee loan” or “personal loan” when the employer grants his employee a loan.
With this form of credit, the interest rate is usually lower than with a classic bank loan. Another advantage: The sometimes quite high processing fees of the banks (or other lenders) are not applicable to the employer loan.
The employer can express appreciation towards the employee with a personal loan. It can also promote long-term loyalty to the company (more on this below).
The following does not count as an employer loan:
- Reimbursement of expenses paid as an advance
- Advance towards travel expenses
- Salary advance
- Wage deduction payment
The latter two payments are not considered loans if no loan agreement has been concluded for the advance or payment. An exception to this are advance payments in the public sector.
There are no legal regulations for employer loans. In most cases, the creditors are guided by the provisions of the German Civil Code (BGB) , which generally apply to consumer loan agreements.
However, these regulations can only be applied as long as the interest rate is below the usual market level ( benchmark interest rate ). If it corresponds to this or is even higher, employers do not have to follow the provisions of the German Civil Code when taking out a loan.
Our tip: If you want to know what the current interest rate is, you can take a look at the interest rate statistics of the Deutsche Bundesbank. The current interest rates can be found here.
If you do not want to use the interest rate statistics, you can proceed differently. In this case, ask your bank to calculate the effective interest rate for a comparable loan.
Smaller employer loans of less than 200 euros and personal loans that take less than three months to repay are also not necessarily subject to the provisions of the German Civil Code.
What should employees and employers pay attention to when it comes to credit?
An employer loan is usually a better option for many employees than a classic loan from a bank. The main reason for this is that the loan is often granted by your own boss without interest or with a better interest rate. For the employee, who is already short on cash, there are no additional costs or at least lower costs than with a bank loan.
However, before such a loan is granted and paid out, important rules and formalities should be clarified so that problems or even disputes do not arise afterwards.
We have summarized a few points that both sides should know and consider:
An employer loan is voluntary.
Those responsible can freely decide whether a company offers its employees such a loan. Employees are not entitled to this, but can at most look forward to the employer's accommodation.
The General Equal Treatment Act applies.
Employers cannot arbitrarily choose which employees to loan and which not. If employees have already received a loan from the boss, other employees can also approach the company.
Part-time employees in particular should not be denied an employer loan without reason. This is evident, among other things, from a judgment of the Federal Labor Court (Az.: 10 AZR 538/93).
However, there is an exception if the employee (regardless of whether they work full-time or part-time) is already heavily in debt or their salary is being seized. In this case, the employer may refuse his employee's request for a loan.
No special protection in the event of personal bankruptcy.
There is a risk for the employer that his debtor will file for bankruptcy. Then it can be difficult for him to reclaim the loan. The reason: He does not have a prominent or preferred position over other creditors.
Details should be regulated as precisely as possible.
All important information concerning the loan must be included in the loan agreement. These include:
- The exact amount of the loan
- The term of the loan
- The repayment and the end of the loan
- The interest rate (if agreed)
- The more precisely everything is recorded, the fewer discussions can arise later.
For example, if both sides forget to record interest on the employer loan in writing, the loan is interest-free.
In addition, when drafting the loan agreement, care must be taken to ensure that it is correct. Certain errors result in the loan not being counted as a loan but as wages. This would then be taxable.
The employee is entitled to a copy of the loan agreement. This should be given to him in writing.
The works council must be involved.
If the granting of an employer loan is in the room, the works council - if there is one - must be involved in the decision.
What happens to the employer credit in the event of termination?
Despite an employer loan, it can happen that notice is given and the employment relationship ends during the term of the loan.
The question then is:
- What happens to the employer loan if the employee is no longer employed by the company?
- The answer to this question depends on what arrangements have been made in advance.
Therefore, once again, we would like to point out that in case of doubt you can save yourself a lot of stress if you regulate all eventualities precisely in the loan agreement and fix them in writing. Otherwise this happens...
Have clear repayment agreements been made?
Was a repayment agreed in the loan agreement? For example, the amount of the installment and the respective due date beyond the employment relationship? If this agreement continues to exist even after the employment relationship has ended , both the company and the employee are subsequently bound by it.
If no exact repayment has been agreed:
If there is no agreement on repayment in the loan agreement, it can become more difficult for the employee. In this case, the employer generally has the right to reclaim the entire loan within a period of three months.
With so-called small loans, a period of just one month is even possible.
If the employee does not repay the amount owed within this period, the entire amount is due at once after the expiry of this period.
In this case, the employer even has the right to raise the previously lower interest rate to the market interest rate. This is also the result of a ruling by the Federal Labor Court in 1999 (BAG, February 23, 1999 – 9 AZR 737/97).
Employer loans can have a positive impact
Helping an employee in financial distress is not only a sign of humanity and compassion , but can also set positive signs for further cooperation:
Employers show appreciation.
Anyone who grants their employee a loan not only shows that they appreciate the work, but also that they respect the employee as a person.
Employers lay a foundation for long-term cooperation.
An employer loan clearly signals that a company is interested in working together in the long term. This gives the employee both security and additional motivation.
Employers can support further training.
Employers can use an employer loan to financially support their employees’ further education or training. After the further training, they benefit from the knowledge they have acquired in their day-to-day work.
Employees also benefit from this: Those who are better educated have important arguments for more money in the next salary negotiation.
Employer loan and benefit in kind
If an employee gets a loan from his employer at a lower interest rate than from a bank and the loan is higher than 2600 euros ( non-application limit ), this is a “ monetary advantage ”. The interest savings are therefore subject to income tax.
Incidentally, it is not possible to grant the employee loans from several employers in order to stay below the exemption limit. The sum of the loans that are still outstanding are added up at the end of the wage tax period. If it is higher than 2600 euros, they must be taken into account in the income tax.
How high the monetary benefit is for the specific employer loan must be determined individually. To do this, the interest rate that the employee pays for his loan from the boss is subtracted from the market interest rate (interest rate statistics from the Bundesbank).
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