Promises to Be Paid

“I gave a large advance to an employee and we started deducting money from his paychecks to pay it back. However, he just resigned and still owes me $750. What are my options for getting the rest of my money?”

Your HR Survival Tip

Whenever a company “lends” money or provides equipment to an employee, you will always take the chance you won’t get it back. California does not allow you to deduct anything from that final paycheck. Yes, even if they have your phone or laptop or an outstanding loan, the value cannot be deducted without the employee’s express permission (in writing, to be safe).

At a minimum, at the time the money was advanced or loaned, you should have put into writing a repayment schedule and agreement for the employee to sign. You don’t want to start deducting money from an employee’s paycheck for any reason without written authorization (aka proof that it’s a legitimate deduction) from the employee.

Once the employee terminates, all bets are off. Since you can’t deduct the remainder owed from the final paycheck, you either have to hope the employee will send you the money or take them to small claims court. However, most companies don’t have the time or patience to use small claims court so the remainder is usually written off.

How can you avoid the loss? Instead of just setting up a repayment agreement, formalize the advance/loan with a promissory note. This should be a template from an attorney to ensure it has language allowing you to take legal action if repayment stops or even fails to begin. A legal promissory note gives you more options for collecting monies owed to you, including sending it out to a debt collector.

Of course, you avoid this problem if you only advance what can (and will) be repaid with the next paycheck. The employee could still terminate employment before the end of the pay period, but that’s less likely than over a longer period of time. Have your attorney create a template you can use if you tend to lend.

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