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Employer loans: benefits, opportunities, risks

Image result for loan graphic

If you need a loan, you should contact the main bank first and foremost. The Employer Loan, also known as Employee Loan, offers the opportunity to use a low-interest loan.

What is an employer loan?

The employer loan is agreed between a company and an employee. Compared to the classic bank loan, these special loans are usually quite cheap. Companies use the granting of an employer loan to ensure a better employee loyalty, especially for qualified skilled workers with special skills, such offers are therefore easy to obtain.

Do you have to meet certain requirements as an employee?

The employer is in no way obliged to grant an employer loan. However, if it is customary for these to be awarded within the company, the general principle of employment law must be observed.

This means that all employees who take out an employee loan receive similar loan conditions and then, for example, regardless of whether the worker is in full-time or part-time employment. This requirement follows the prohibition of discrimination in § 4 (1) of the law on part-time work and fixed-term work (TzBfG).

Danger

Employees are not required to provide any employee with a loan just because they have already done so for other employees. Employees are in no way legally entitled to this particular form of loan. A rejection can be made for various reasons, such as due to existing debt or a current garnishment.

Does the employee have to name a purpose?

Again, there are no legal requirements, but it has become common in the course of time that an employer loan is often earmarked. This means that the capital is used for a specific reason:

  • Training
  • real estate
  • buying a car

There is a special regulation for company-owned goods. It is prohibited under § 107 paragraph 2 sentence 2 Trade Regulation (GewO) to grant a loan in order to leave the employee’s own products.

How much can the loan amount be?

Employer loans can be applied for at any credit level. Financing for further training is a classic case in many companies, and loan amounts between € 300 and € 2,000 are usually sufficient for this. More and more employers are also running special financing programs for real estate purchases. In this case, the loan amounts are correspondingly high. The legislator has not set any rules for maximum limits. This means that there is basically no limit to the top. Of course, the amount actually granted by the employer depends on the individual circumstances.

Why is the employer loan an alternative to bank credit?

Now the question is whether an employer loan is the right choice for everyone. Many workers are afraid of the idea of ​​being financially tied to the employer in the long term. However, there are a number of benefits that an employer loan has to offer:

For one, the loan is often very low interest. The employer is based on the market interest rates, but often the offer is below. This can make a significant difference, especially for large loan amounts.

Companies are also often able and willing to lend small amounts of credit without a full credit check. Obviously, the employer is informed about the amount of a regular income, so that only a few credit checks are performed. Collateral is not always necessary.

What should be considered when concluding an employer loan?

Whether employer loans or not, consumers should never refrain from making a comprehensive credit comparison. For although an employer has the opportunity to offer good terms, this need not always be the case. The framework conditions are also interesting for lending:

  • interest rate
  • running time
  • Repayment
  • unscheduled
  • termination

Is an interest subsidy the same as an employer loan?

It is possible to receive a so-called interest subsidy from the employer. However, this has nothing to do with the award of an employer loan. Here, the employer takes over the interest for a bank loan in whole or in part for the employee. The loan is taken by the employee from a bank. This interest subsidy is classified as a cash value benefit and is tax deductible in its entirety as wages.

How is the loan treated for tax purposes?

If you want to avoid causing trouble with the next tax return, you must take into account a few conditions when accepting the employer’s loan. If the loan is not contractually regulated, it may be that the entire loan amount is classified as a pecuniary advantage by the tax office. This means that the amount is treated in full as a wage, the capital is not correctly defined as a loan.

In this context, it should also be noted that according to a ruling of the Federal Finance Court (AZ VI R 28/06), the interest advantages of an employer loan are monetary benefits, the interest rate is below the market rate. Again, these costs are taxed as wages.

Are there any tax credits for the employer loan?

The Federal Ministry of Finance establishes an exemption limit of 2,600 euros for monetary benefits. This means that they only have to be fully taxed, the sum of the un-loaned loan after the end of the pay period is above this value. If, for example, an interest-free loan of € 1,500 is granted by the employer, which is assigned to the employee as a salary advance, the resulting interest benefit need not be taxed.

Note

According to § 8 para. 2 sentence 9 EStG, the employer can assign monthly subsidies of 44 euros to his employees. If this exemption limit is exceeded by the interest rate advantage, it must be fully taxed.

How can the monetary advantage be determined?

The interest rate advantage granted by the employer is determined individually for each case. There are no general rules here, according to each employer loan works with other numbers and conditions. The EStG distinguishes two ways for the determination of the monetary benefit:

  • Paragraph 8 (2) of the EStG: applies to workers who receive an employer loan from commercial firms and industrial companies that are not specialized in the business of loan agreements.
  • § 8 para. 3 sentence 1 EStG: Valid for employees who receive a low-interest employer loan from a financial institution.

Basically, one calculates the monetary value advantages over the market standard effective interest rate. Employees can find out their amount at, among others, the house bank. In addition, relevant information can also be viewed online, for example at the Deutsche Bundesbank. The usual interest rate at the time the contract is concluded is relevant for the calculation. This changes, it is an employer loan with variable interest rate.

Release of the loan capital by the employer

In order to be able to claim all payments taxable as loan capital and the interest rate advantages calculated, the originally agreed contract must be fully complied with. A classic employer loan agreement should not essentially differ from a classic installment loan contract. Here, in addition to the loan amount and the interest, the term, repayment and possible collateral are set.

If the employer makes part of the loan, the capital is no longer seen as an employer loan, but as a salary payment. This must be reported accordingly by both parties and taxed. The remaining loan amount is considered as a one-off payment in this case.

Danger

If an employer loan is granted without interest, it is also considered under tax law as a one-time payment.

Employer loans for employees of financial institutions

Employees who receive an employer loan from a financial institution are classified differently under the EStG. What type of financial institution in this case is the employer does not matter. What matters is whether the company operates as one of its main businesses to lend.

If there is an interest rate advantage here through the granting of the employer’s loan, this is regarded as a personnel discount in this case. This is accompanied by a separate tax treatment. The pecuniary advantage is not calculated using the usual market interest rates, but via the comparables of the financial institution. If the calculated monetary advantage exceeds the 1080 Euro, it will be fully taxable. What is below the allowance is not taken into account.

The advantages and disadvantages of an employer loan in the overview

Both employers and employees benefit from an employer loan. For the employer, it’s a great way to underpin their appreciation for employees. Above all, qualified specialists are needed in the highly competitive job market. If you want to achieve a close and long-term commitment, you can certainly spend these offers. But not only for employers there are significant benefits to discover. The loan is often very cheap and easier to obtain than a classic installment loan.

Note

If the employee leaves the company, the loan agreement will continue. It can therefore happen that the loan is paid off beyond the employment relationship. In this case, the conditions do not change. The original contract is still valid. This is also ensured in the case of a termination of the employment contract by the employer.