Should a boss loan money to a worker?

I’m the human resource manager of a small business established 10 years ago. We don’t have a cash advance policy for employees. It is a long established rule, in place since we started the business. Because of that strict policy, our employees have resorted to borrowing money from each other, including their immediate supervisors and managers. What are the potential problems of borrowing money from bosses? — Morning Dew.

Money is like a viper: harmless if a person knows how to take care of it. If you don’t know how, chances are, the viper will wrap itself around you and bite. The same thing can happen between bosses and workers. There are a few questions we should explore before answering, foremost among them: How difficult is the borrower’s situation? How will a borrower-lender arrangement affect their work relationship?

Also: what are the repercussions if a boss refuses to lend money? Would that affect the worker’s performance? How can a boss turn a deaf ear to a hardworking person who may be experiencing a crisis? What if a boss lends money and the worker refuses to pay for some reason? Or what if a supervisor or manager lends money without expecting the worker to pay it back? What is the possibility that the boss’ generosity opens the door for other workers to take advantage of him?

Answering these questions can be tricky. Just the same, I must commend your organization for creating a “no cash advance” policy in the first place, except that the problem you’ve tried to solve has created another issue — borrowing money from bosses. Some organizations try to ignore this, but I would warn you to watch out for red flags every step of the way.

SYSTEMATIC APPROACH
Don’t be rushed into making a decision on intra-office borrowing. Inform your top management about the possible implications of such transactions. Call a special meeting to consult with your supervisors and managers about the implications for company operations. The impact could be minimal at the start, but don’t be complacent. Consider the following measures:

One, highlight the competitiveness of your pay policy. Participate in industry surveys, or obtain the latest report showing the trend of pay and perks in other companies of similar size. It’s better to be proactively transparent than be accused of having below-average pay packages. Adjust pay and job grades to make them competitive. If you want to stick to paying only what the law requires, then forget about it. This advice is not for you.

Two, teach all workers to be financially responsible. Invite a subject matter expert to help employees and their managers handle their finances. Teach them how to spend within their means. Some financial institutions have programs that cater to wage earners. You can hire them for the advice which is usually free of charge. I’m sure you can get many money-saving tips from these financial experts.

Three, prohibit usurious lending. Do not allow outsiders to enter the company premises to loan money or sell products like jewelry or appliances to your people. Most of these peddlers charge an arm and a leg. They must do their deals outside the premises and after office hours, which you can’t control, anyway. Remind everyone to be responsible in managing their finances.

Four, establish an emergency loan program for employees. It should be interest-free, limited only to the actual amount needed, and applicable only in emergencies like the hospitalization of an immediate family member, a vehicular accident which is not the employee’s fault, a natural disaster, or similar incidents. You can add other eligible events but you must be strict. Otherwise, you will end up with multiple pretexts for tapping the program.

Last, increase the workers’ pay and perks, if you can afford it. But even if you can’t, strive to reward and recognize people in whatever form, especially those who exceed your expectations. Reward merit, not seniority. For this reason, you must review your performance appraisal system so it is geared towards rewarding superior performance and not sheer time spent in the office or shop floor.

FIRM, BUT COMPASSIONATE
If top management decides to bar team leaders, supervisors, and managers from lending money to workers, as distasteful as such a decision may be, you’ll need to be a bearer of bad news. As HR manager, you can imagine how such a situation could disturb harmonious work relationships between workers and managers.

However, there are ways to minimize, if not eliminate the emotional letdown. Don’t delay delivering the bad news. Put it in writing for record purposes. Don’t impose penalties for non-compliance. It may not look good for those people in dire need.

Be firm, but compassionate. Understand the feelings of people who are in financial trouble, but don’t let it get in the way of reminding them of the policy. Be sensitive to workers with personal or family problems.

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