Recovering debt from employees – steps to follow

Although most companies compensate their employees only with the monthly paycheck and the financial benefits stipulated in the contract, there are also cases when management agrees to lend money to an employee when they need it. This tends to be common practice in smaller companies, where executives and staff know each other personally and form a tighter connection. In principle, lending money to employees isn’t a frowned upon idea, because in most cases employees really appreciate the help, pay the money back as soon as they can and express their gratitude by being loyal to the company.

However, not everyone is reliable and there might be cases when the employee fails to give the money back at the established date or, worst case scenario, they disappear without a trace.

Debt collectors share their advice on how to deal with employee debt and recover your money in a calm manner, without any unnecessary complications.

Have a personal discussion with the employee

If it’s already been a couple of months since the due date, but your employee still hasn’t given you your money back, don’t resort to harsh legal proceedings just yet. Instead, try to approach that employee privately and ask them about their financial situation. Most people don’t like owing their company so if they cannot pay back, they are usually under great financial stress. If the employee cooperates, try to establish another way of recovering the debt, such as in small monthly installments or in the form of overtime or working weekends.

However, if the debt is too big for it being recovered this way, or if the employee is reluctant to cooperate, you can move on to other means of debt collection.

Talk to an expert in debt recovery

Contrary to common belief, not all debt recovery cases don’t require a lawsuit and they can be solved in a small-claims court. A debt recovery company can help you take the right course of action and get your money back without affecting your professional relationship with the employee (who may otherwise be great at their job) and without going through unnecessary stress. Alternatively, you can also sell the debt to a debt collector, so that the case doesn’t have to go to court.

How you shouldn’t try to get back your money

If you’re already dealing with your own financial challenges within in the company, an employee or ex-employee who owes you money can be a major stress factor. However, it’s very important to keep you calm and avoid these mistakes:

  • Don’t yell or threaten the employee in the hope of intimidating them. In most cases, this makes them even less cooperative and you might end up complicating things. Instead, explain to them calmly that the due date has passed and make sure they understood the terms of your loan to begin with. If still they refuse to pay you, follow the legal proceedings and stay away from any form of direct confrontation.
  • Do not fire that employee. After learning that they refuse to pay your money back, you probably don’t want that kind of person in the company anymore, but keep in mind that debt might not be a valid reason to terminate their contract. This way, by firing them, they could be eligible to make a wrongful termination claim against you and this would only lead to more legal troubles. For best results, you should talk to your business jurist to see what you can and cannot do.
  • Don’t take your money back from the employee’s salary. You can only do this if you signed a written agreement stipulating this before making the loan, but in most cases, this doesn’t happen.

There are also cases when you did not lend your employee money directly, but you need to recover debt from them after they have left the company: redundancies were overpaid or terminations have either not been flagged up with the HR or salary department or this has occurred sometime after the event.

Such cases are more complicated from a legal perspective – especially if it’s not the employee’s fault that they owe you money – and it’s really important for a strong legal team to have your back and advise you on whether or not you should or shouldn’t try to recover the debt. If your ex-employee now doesn’t have any source of income, or they moved from the country, going the extra mile to recover company debt can cost more than the debt itself, not to mention that it can affect your public image.

All in all, recovering debt from employees is possible, but you do need a debt recovery expert to advise you on what is the best route to follow.