An employee may need to take a loan from the company after which the employer may deduct from the salary. The process makes it necessary to formulate a loan agreement that stipulates the amount loaned and what should be deducted from the salary. By signing the loan agreement, the employee acknowledges receipt of the loan and permits the employer to make deductions from the pay at the stipulated time.
The employee loan agreement makes it legal for the employer to make deductions from the employee's salary to repay the loan, especially for the jurisdiction where unauthorized deductions from the paycheck are illegal. Having an employee loan agreement template makes it easy for the employer to create a binding agreement by just filling the blank spaces.
Contents of an employee loan agreement
- The name of the company and that of the employee. The names should be accompanied by the addresses of the parties involved, although the address of the employee may be left out.
- The terms and conditions of the loan. These should specify the amount of the loan taken by the employee, the reasons for it, interest rate, and the amount that should be deducted and when. It should also cover the steps the employer should take in case the employee resigns or employment terminated when the full loan has not been repaid.
- Date of signing the agreement. This is the date when the loan agreement comes into effect.
- Signatures of the employee and witnesses. It is paramount for the employee loan agreement to be signed in the presence of the witnesses. The employee and the witness should append their signatures.
Sample Employee Loan Agreement Template
Employee loan agreement
Company name and address: ………………
Employee name and address: ……………………
- The Borrower, who is the employee, acknowledges a debt of ………. from the Lender, the employer, taken for the following reasons:
- ………………
- ………………..
- The employee agrees to the loan at a yearly interest rate of 11%. The interest will accrue on the amount pending. The amount paid will first cover the interest and then the principal.
- The employee has given authority to the employer to deduct …………. per monthly payment from the employee's salary starting ………………… until the loan is fully paid.
- The employee agrees to have the unpaid amount deducted from the paycheck in the case of the end of employment with the company.
Signed on this ……. day of ……., 20...
Employee's signature:
Witness A signature:
Witness B signature: