Employee Loan Repayments
  • 28 Feb 2024
  • 4 Minutes to read
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Employee Loan Repayments

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Article summary

There may be times when the business and an employee agree to deduct money from the employee's pay to repay a cash advance or purchase of goods from the business.

Keeping track of repayments and the outstanding balance in the GL and clearly showing repayments on the employee's Pay Advices will help to avoid any confusion or disputes.

Initial Setup

In Marlin GTX

Create a liability account called "Employee Loan Repayments" or similar, or use an existing unused liability account (e.g. a Holding or Clearing account).

In Marlin HR

Import the new GL liability account from Marlin GTX by selecting System > General Ledger Accounts from the menu toolbar and then clicking on the Refresh icon . Answer Yes to the confirmation popup.

Select System > Payroll Liability Accounts from the menu toolbar. If there isn't already one called Employee Loan Repayments (or similar):

  • Click on the Add icon to add one.
  • Enter "Employee Loan Repayments" (or similar) in the Liability Account Name field and select the Employee Loan Repayments account in the General Ledger Liability Account field, then Save.

Select System > Deductions from the Marlin HR menu toolbar. If there isn't already one called Employee Loan Repayments (or similar):

  • Click on the Add icon to add one.
  • Enter "Employee Loan Repayments" (or similar) as the Deduction Name, select After Tax and choose N/A so as not to show repayments on Payment Summaries. Click on the Save icon.

Applying the Deduction to an Employee:

In Marlin HR

In Employee Maintenance, open the employee and then select the Pay Details tab.

Click on the Add button in the Deductions section (bottom right).

Select "Employee Loan Repayments" as the Deduction type and "Employee Loan Repayments" as the Liability Account.

Enter the $ amount to be withheld from the employee's net pay as a repayment (or leave it as $0 and manually enter the deduction amount on each pay), then click on the OK button to save.

Managing Repayments for Store Purchases

In Marlin GTX

Set up a Customer Account for the employee.

Invoice the goods to the employee's Customer Account.

After posting the pay run journals from your Marlin GTX inbox, journal the repayments to the customer account (debit the Employee Loan Repayments account & credit the employee's Customer Account).

Managing Repayments for Cash Advance / Loan

In Marlin GTX

If there won't be more than one employee at a time afforded a cash advance, you can track the loan in the Employee Loan Repayments liability account:

  • Perform a Cashbook Entry to initiate the loan (credit Bank account & debit the Employee Loan Repayments liability account)
  • There is no need for manual clearing journals as the loan repayment deductions from pay runs are automatically posted to the same liability account as the opening loan balance.

If there may be more than one employee at a time afforded a cash advance, you will need to track them in individual customer accounts:

  • Set up each employee as a Customer Account.
  • Perform a Cashbook Entry to initiate the loan (credit Bank account & debit the employee's Customer Account).
  • After posting the pay journals from your Marlin GTX inbox, journal the repayments to the employee's customer account (debit the Employee Loan Repayments account & credit the employee's Customer Account).

Monitoring the Outstanding Balance

Monitor the loan balance (in the Employee Loan Repayments liability account or employee's Customer Account) and remember to remove the deduction (or set the amount to $0) in Employee Maintenance when the loan has been fully repaid.

Outstanding balance at Termination:

If there is still an outstanding loan balance when the employee is being terminated and this amount is to be deducted from the employee's Termination Pay, click on the After Tax Deductions field in the 'This' column and then click on the Add button and select Employee Loan Repayment from the drop down box. Enter the amount to be withheld as a loan repayment.

Using Annual Leave as Loan Repayment

If it is permissible under the Award or employment agreement relevant to the employee for the employee to cash-in some annual leave, employer and employee may agree that the employee cashes in some annual leave and uses some or all of the after tax amount to make an employee loan repayment to the employer.

In this case, you will need to:

Calculate the number of Annual Leave hours required (hours x hourly rate - tax) to cover the required loan repayment.

Follow the cash-in leave procedure to create an Adjustment Leave entry.

Initialise an Adjustment Pay to pick up the Adjustment Leave entry.

Add an After Tax Deduction on the Adjustment Pay for the Employee Loan Repayment.

Warning

Megabus Software P/L strongly suggests you do not simply do a Leave Balance Adjustment to reduce the employee's accrued annual leave balance by the number of hours that would equate to the loan repayment.

This approach would ignore the fact that you are in effect paying out the annual leave, ignore the fact that this payout is taxable, and bypass a pay run. As a result, the payout of this leave would not be recorded as income for the employee and you would not be withholding the required amount of tax. Also, the employee's income would be understated on their Payment Summary that you forward to the ATO at the end of the tax year. Furthermore, this method would reduce the employee's accrued loan balance by an insufficient number of hours (as it does not account for tax) and would also cause a discrepancy between the store's leave liability in HR and the GL (avoiding a pay run means there is no pay journal sent to the GL to adjust the provision for annual leave liability).


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