Employer loans: Useful for employees?

An employer loan can be an alternative to traditional loan, but not only brings benefits but also some legal pitfalls. 

 

Instead of going to the bank, the path to financing can also lead to the boss or the personnel office. Whether an employer loan is better or worse than a financing at a bank, can not say flat-rate. What is certain, however, is that if you borrow from the boss, you have to pay much more attention to avoid getting into legal trouble.

What is an employer loan?

The employer loan is basically a normal loan according to § 488 ff. Civil Code (BGB). The fact that the lender is also your employer is legally irrelevant in most cases. If interest rates are not lower than those currently prevalent on the financial market, the employer’s loan is even classified as consumer loan under §§ 491 ff. BGB. Special rules apply in part to companies that are themselves part of the financial industry.

Employer loans are usually earmarked. By the way, your employer may not grant you a loan if you want to buy company-owned products – this is prohibited by § 107 of the Gewerbeordnung (GewO). The only exception: If you want to buy company shares before a pending IPO.

Tax specifics of the employer loan

If the conditions on which your employer lends you money are better than usual in the market, this is considered a pecuniary advantage. This must be taxed accordingly. So it may well be that the employer loan in the end, despite low interest rates is not cheaper than a bank loan with good terms .

The current exemption levels for benefits in kind by the employer are relatively complicated, so that legal advice from a tax expert is recommended. However, there are also costs that you should keep in mind when weighing bank and employer loan. An alternative to employee loans can be an interest subsidy: you take out a loan from a bank and your boss pays the interest. However, this is also a pecuniary advantage.

Loan from the boss: what belongs in the contract?

With an employer loan, you are to a certain extent tied to your company – that makes such financing attractive for companies. Think well, if you want that. Sometimes the boss should not even know that you need a cash injection. If you opt for the company loan, the following is in the contract:

  • loan amount
  • running time
  • effective interest
  • repayment agreements
  • collateral
  • Termination of the loan
  • Regulations, what happens when the employment is terminated

If you cancel or give notice yourself, the repayment of the remaining debt can be demanded within three months – unless you have agreed otherwise. Loans with a value of less than 200 euros can even be due immediately.

Does every employee get a loan?

There is no legal claim that your boss must grant you an employer loan. Even a wage advance, in which you do not get more money, but the payment is only a little earlier, is purely voluntary.

However, if your company grants loans to employees, the principle of equal treatment applies: the conditions must be the same for all employees. For example, part-time workers must not be placed in a worse position than people with a full-time job. However, the principle of equal treatment does not mean that all employees get a loan. For example, if there is already a wage seizure, the company may legitimately decline your request for an employer loan.

Incidentally, should you have difficulty repaying, your employer can not just withhold the wages. Because even for him the seizure exemptions under § 850 Civil Procedure Code (ZPO) apply.