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Although an employer cannot deduct the amount of an outstanding loan from an employee’s final paycheck, an employer can enter into a written agreement or promissory note with an employee specifying that the employee will be required to repay the loan.
The agreement should include the amount of the loan and clearly state the terms of the loan repayment.
Repayment of a loan by an employee must be made by check or other means to the company, not by a payroll deduction.
If the employee refuses to pay back the loan, the employer can choose to go to small claims or superior court (depending on the amount of the loan) to enforce the written agreement.
Employers should review their handbooks and other written policies on employee loans to ensure compliance with the law. Employers also should consider having written agreements with employees outlining the employee’s obligation to pay back a loan.
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