One of our employees took a loan (Zero% interest) and half of the loan amount is paid back until now. Her reporting manager has been criticizing her work and attitude for quite a few weeks, recently. The company made an agreement on court paper (duly notarised) at the time of the loan which prohibits her from giving up the job or to pay a flat rate of interest along with the principal loan amount. She recently showed interest in leaving the job for some personal issues and/or not performing in her KPIs well. Can we hold her salary? What documentation should be necessary before we hold her salary?
From India, Kolkata
Labour Law & Hr Consultant
Hr Manager
Ceo-usd Hr Solutions
Insolvency N Gst Professional
Management Consultancy
+1 Other

Dear Ranajit,

The gesture of the management in granting her an interest-free loan repayable while remaining in the service of the organization is not only indicative of the employer's faith in her integrity but also her sincere service. Every thing suddenly changed due to the negative feed back of her functional head and she is also desirous of leaving despite her commitment to pay back the loan amount with interest probably out of frustration.

Ironically, your post is silent about the steps taken by the management to dispassionately review the negative feed back on her deteriorating performance, steps taken like counselling or putting her on PIP etc. Assuming that her performance of late is not satisfactory is true, I don't think with holding of her salary is a proper administrative action. Better, you may consider permitting her to resign peacefully.

When a long-serving active employee is permitted to exit due to certain performance related issues at the end, you should remember that such employee takes away the experience gained along with his/her exit. An ideal HR practice requires a thorough and dispassionate review of the case and to put appropriate remedial measures in place.

From India, Salem

Holding her salary till she has not resigned or issued termination is improper and illegal. In the order accepting her resignation or in the termination order, you can specify that now she would be paid her full and final settlements at the end of her notice period. In other cases, holding back the salary will have penal & other legal consequences.
From India, Mumbai

Holding salary of an employee is an unhealthy HR practice. If management decides to terminate her services due to performance issue, give her salary alongwith Notice pay salary, and if she wants to resign from the service allow her to do it and allow her to continue to serve NP as per employment contract.
As regards recovery of balance loan amount, this can be dealt with her separately as, company has a valid legal, agreement with her.

From India, Aizawl
Usual practice to offer loan/advance to any employee is the same will be recovered from salary in installment agreed between employee and management. If the employee resigns or termination of employment, then the same will be adjusted against Full and Final settlement.
S K Bandyopadhyay ( Howrah, West Bengal)

From India, New Delhi

The employee was granted a zero interest loan and I am sure that company must have found her work good enough and also commitment to work reasonably high.
If there is a sudden dip in interest and work levels,it needs to be discussed separately with her and her manager.
What was the manager reports about her earlier?
Has she any personal problems which has come up and affecting output?
It needs a quiet examination and then decided upon.
If she is is intent on leaving,then money needs to be recovered as per terms of notarised agreement.
Holding salary is not a desirable option.
What other benefits is due to her?
There is no need of unilateral action to coerce her into paying the balance loan amount.
Her resignation if and when submitted is always to be accepted subject to company rules/appointment conditions and clearance of all dues.

From India, Pune
I am more inclined to have first round of discussion with the employee and understand her problems and try to fix up a ratio that she would give each month from salary so that loan amount gets recovered and she also gets time to adjust with the changing circumstances, which may give her improved performance.
Since we do not have a feel out of the case represented so far, I feel discussing and sorting out will be more important. Many organisations give cash equivalent for Privilege leave balance in account, you can have a look at that and if she gives consent you can recover the loan or part of loan from her full and final settlement if she volutarily submits resignation.
Hope, I have understood the case to your satisfaction.
Powai Office

From India, Mumbai

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