Termination Letter format - employee not paying loan back - CiteHR
Dinesh Divekar
Business Mentor, Consultant And Trainer
Labour Law & Hr Consultant
Industrial Relations And Labour Laws
Aniket Pathak
Sr. Executive Hr
Nagarkar Vinayak L

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There is an employee who take loan from the company before 2-3 years back, he didn't pay that loan back to till, and we want to terminate him to give the reason that he is not giving back the loan payment. So how i write this in termination letter.
Dear friend,
First and foremost, you need to tell us whether you have policy on disbursement of loan to the employees. In case if you do not have such policy, then did you make any agreement for method of returning the loan? In case, if you have not made this agreement then you have increased your trouble because of lack of documentation.
If the loan was given to the employee, then from the next month onward, instalment gets deducted. Are you deducting portion of the loan? If not, why?
Did employee agree to pay the entire amount in single instalment? If yes, and if he has failed to do that, then what kind of correspondence have you done with the employee? What is his justification for non-payment of the loan?
You may terminate the employee, however, before that it is better if you conduct the domestic enquiry. Let the facts be established properly and then take disciplinary action.
Dinesh Divekar

First of all, please tell us what you want from us? A draft of a letter terminating an employee or an advice whether you can terminate an employee for a charge of non payment of a loan to the company? If the first is your choice, then you may please write to the employee that since you have not paid back the loan you are hereby terminated from service. Anyway you are going to face the consequences of termination, and that you should face.If you are okay with the second one we have the following advices based on certain questions.
Have you ever communicated this matter to him?
What was the arrangement when he was given a loan?
Was here any arrangement that the amount will be recovered from salary in installments?
If yes, why didn't you recover it from his salary?
If there were no such arrangements but the loan was given with an understanding that the employee will pay it back once he gets some money from some other sources, then have you requested him to pay it back at least once in six months after it has become overdue?
If the answer to the above is No, then also it is your fault that you did not take initiative to recover the amount advanced.
Now, the only option available is to give him a letter stating that an amount of Rs .....is overdue and the same should be paid back in .....months, failing which legal action as deemed fit shall be taken against you....
Here the time that you should give should equate with the amount involved and the salary and other income of the employee. Obviously, you should give more time to an employee whose monthly take home salary is less and where the amount involved is huge.
You can also think of salary deduction.
Terminating without giving him an opportunity to be heard is unfair.

Dear colleague,
Looks you don't have policy and system of payment of loan to employees and it's recovery from salary.
I fail to understand how can termination of service be a solution to the recovery of defaulted loan amount .
Vinayak Nagarkar

Dear friend,
In the matter our elite members have already given the option to follow. There is nothing much left to suggest because you kept all the doors shut.
Now you communicate the employee since he is not repaying the loan, the management has taken decission to dedut/recover the loan amount from your current month salary in 2/3 installments. This decission has taken by the management as you have failed to return the loan amount inspite several verbal requests. If you have anything to say in the matter contact us with your written proposal by next 2days or otherwise it would be treated as your consent.

Dear friends,
Though I concur with all the members in so far as their suggestions to the recovery of the loan amount from the defaulting employee are concerned, I would like to approach this issue from a different perspective. Out of this monetary transaction, the Company and its employee who already having the contractual relationship of employer and employee have entered into yet another contractual relationship of debtor and creditor. Besides, I don't think that the entire loan -transaction would, by the way of its sanction and long pending recovery, fall into the parameters of " the loans and advances to employees" provided for under either any establishment-specific labor law applicable to the establishment/ company or the Payment of Wages Act,1936. Therefore, my question is whether the contract of employment would legally empower the employer to initiate disciplinary action against the employee or terminate his services for the failure of repayment of the loan obtained by him. Sorry, it is not legally possible for in this unhappy situation, the employer stands only as a creditor and the employee as s defaulting debtor. It is better the management tries to sort out the issue amicably or institute a Civil Suit for recovery of the loan amount. If the decree is in favour of the company, of course, it can ask the Court for periodical recovery from his salary

How big is your organistion?Under what circumstances a loan was given to him? What were the terms and conditions of disbursement of loan? Any promisory note taken from him?Is he a workmen or is he in supervisory and managerial level? Why did you not recover in installments?Who sanctioned the loan?
I can add a few more clarificatory questions before giving any legal and strategic advice on this subject.
Recovery was the responsibility of the employer and if the employer has not done so for three years, what was the reason?

Dear Annonymous,
There is not much to add after respected seniors already laid light on the issue Also I don't know if you are financial institution or not but in either case shutting down the source of income of an employee from whom you want to recover some amount is not wise. Instead you should ask him to pay the said amount in regular EMIs from his salary. That way you will be able to recover the amount as well as retain the employee.

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