Give an employee a loan or salary advance

Use this screen when the company lends money to an employee or pays part of the salary in advance. You record the loan, approve it, and disburse it. From then on every payroll run deducts an installment until the loan is repaid, with no manual work.

A loan moves through these statuses: Pending when recorded, Approved, Active once disbursed, and Completed when repaid. You can cancel it while it is still pending or approved.

Before you start

• If HR settings post HR transactions to accounting, map the employee loans receivable account and the cash or bank account used for loan payouts in HR settings. Otherwise the disbursement is refused with a message naming the missing setting.

Record the loan

1. Open People › Payroll › Loans & Advances and select New Loan.

2. Choose the Employee and the Type, for example a salary advance or a personal loan.

3. Enter the Principal, the Instalment Amount and the Number of Instalments, up to 120. The instalments must add up to at least the principal.

4. Optionally set the First deduction date. Leave it blank to start recovery from the disbursement date. If you pay the loan out late in the month, set it to the 1st of next month.

5. Choose the Installment frequency, check the Application Date, add the Purpose and Notes, and select Save.

Approve and disburse

1. In the row's Actions menu, select Approve and confirm. Approval records the decision and has no financial effect.

2. When the money is paid, select Disburse, enter the Disbursement Date, and confirm.

Disbursement cannot be undone. It does two things:

• It posts the loan to the ledger, debiting the loans receivable account and crediting the cash or bank account, dated on the disbursement date. The fiscal year for that date must be open.

• It creates the repayment deduction that the payroll run reads. You can see it on the Deductions tab of allowances and deductions.

How the payroll run recovers the loan

• The first installment is taken by the first payroll run whose period ends on or after the first deduction date, or the disbursement date if you left it blank.

• With a Monthly frequency, a monthly payroll takes one installment per run. With Weekly, every payroll run takes one installment, so use it only when you run payroll weekly.

• The installment comes after social insurance, income tax and the other statutory deductions. Net pay never goes below zero. When the pay left is smaller than the installment, the run takes only what is left. The balance goes down by that amount, the installment count does not move, and the full installment is tried again the next period.

• Each recovery reduces Outstanding and adds to Instalments. When the balance reaches zero, or every installment is recovered, the loan becomes Completed and deductions stop.

• Rolling a payroll run back to draft restores the balance and the installments that run had recovered.

Common questions

The employee is leaving with a loan outstanding. The end of service settlement deducts the outstanding balance from the final payout.

Can I edit a loan after saving it? No. Cancel it while it is pending or approved and record it again. After disbursement, the repayment line can only be paused or ended from the allowances and deductions screen.