In brief:

• Staff loans can be a useful HR tool but some financial exposure is inevitable as the recovery of any balance can be difficult if the employee leaves before full repayment or is unable to repay.

• Staff loan schemes must be well managed and documented. Employers should secure recovery by deduction from salary payments. Interest should not be charged on staff loans.

If a company does have a policy of providing “staff loans”, the policy should be carefully managed, in accordance with pre-determined and consistently applied rules. Under the rules, there should be a fixed “approval” mechanism in place and close liaison between HR and accounts departments.