An employee comes to you, they are in a bind and are wondering if they can get $50 and have you take it out of their check on payday. What do you do? You want to help your employee out of a bind, but also are concerned with the precedent it may send.
First, judge if the situation is actually an emergency situation, i.e. “my car is broken down and I won’t be able to get to work;” “I am going to get kicked out of my house;” “my spouse is in the hospital.” If the situation is an emergency, say that for this one and only one time, you will make this exception.
If possible, try to do this as a personal lend. I can’t as a company do that, however I will personally lend you $50 that you can pay me back when you cash your check on payday. In this way, it is much more personal and you are much more likely to get your money back. Also, it’s harder to ask for money from a person rather than ‘the company’. It also prevents a precedent from forming where money gets pulled from a check.
In the future, if they ask you are able to mention, “sorry it was a one time thing, and I just don’t have the cash right now.”
If the event is not deemed to be an emergency situation, tell your employee that you unfortunately cannot lend them money early. You can let them know that you don’t want to set a precedent and that as a small business you need to watch your cash flow very carefully. While this may be tough initially it is the correct decision to make.
But what is the big deal? If you can just take it out of their check, why can’t you just lend them the cash?
You should not lend cash to your employees, even it is just a small advance for several reasons.
First, it affects your cash flow, and cash is king. It can affect whether or not you can pay your bills on time or buy the things you need. You shouldn’t risk the stability of your business just because an employee is temporarily inconvenienced.
Second, it causes extra work. In a restaurant environment where there is already not enough time, you now need to make note of what was borrowed and then remember to deduct it from the check. “Is that pre-tax or post-tax?” “Did they already pay for this advance or not?” What happens if I lent them too much and now their check is below minimum wage rate? It can get messy quick and you have more important things to worry about then trying to answer all of these unnecessary questions.
Third, it affects your ability to properly discipline. You will have a hard time scheduling, suspending, or terminating employees because you know they owe money yet. You may not do what needs to be done because you don’t want to lose the money. This is terrible management that is now further hurting your business even further.
Fourth, it may be illegal to withhold money from an employee’s check. In many jurisdictions it may be illegal to withhold money from a paycheck for any purpose other than taxes, insurance, or government-issued garnishments. Therefore, you’ll have to let the employee cash their check and hopefully bring your money back to you. If they were already forced to borrow money early, chances are they don’t have a bunch of money to pay you back.
Fifth, an employee’s ability to manage their money really has nothing to do with how the business operates. It is not the business’s responsibilities to pay for an employee’s bills.
If you have been lending money to your employees, stop immediately. Let them know you will no longer be doing any form of cash advance. Put this in writing in your handbook; this should help keep most employees from even asking.