Employers should establish clear guidelines regarding whether they will advance money to employees. If an employer is willing to make loans, its policy should specify maximum loans amounts, interest rates, documentation, and payback provisions, and the employer should consider whether each loan is subject to the federal Truth In Lending Act (TILA), what the tax and legal ramifications are, and whether an employee would be better served through an employee assistance program (EAP). There are four types of loans available through employers: advance earned income credit, below-market loans, loans from 401(k) plans, and loans as incentives.
