How to Offer Employee Loans without Creating Legal Headaches

In their ongoing Employment Law in Focus series in Today’s General Counsel, Woods Rogers Principals and management-side employment lawyers Anne Bibeau and Leah Stiegler take a look at a popular approach that many companies take – offering small, short-term employee loans to help workers manage temporary financial setbacks. While a valuable benefit, these programs can pose legal risks if not implemented carefully.

“Beyond being a goodwill gesture, employee loan programs can strengthen workforce stability and engagement,” the authors write. “By supporting employees during moments of financial strain, companies can boost morale, improve financial wellness, and enhance retention. HR professionals increasingly view such programs as part of a holistic benefits package, one that signals empathy and trust.”

But “no good deed goes unpunished without proper planning,” Anne and Leah warn.

“We recently advised a client who offered pay advances through a third-party wellness provider. Unfortunately, the contract terms left the company responsible if an employee left before repaying the advance. One employee borrowed $2,000, resigned shortly thereafter, and left an unpaid balance. The provider demanded repayment from the employer, then the former employee filed a complaint with the Department of Labor (DOL) alleging unpaid overtime. When the DOL sought $800 in alleged back wages, we argued that the outstanding loan balance should offset the claim. That argument was complicated by the unfavorable terms of the third-party contract, which limited the company’s flexibility and recovery options.”

Read Anne and Leah’s column with practical suggestions for HR teams in Today’s General Counsel here.