Provided by: Jennifer Kirschenbaum, Esq.
September 17, 2019
I am loaning an employee money (not an insignificant amount ($25,000)).
Yes, if you want to be secured, you need a promissory note and some type of security, which depending on how you pay the employee may or may not be a right to offset from compensation. The question gets trickier when we factor in the human component - you may be asking but then not willing to present the employee with a promissory note - which is not recommended. A person asking for a favor doesn't mean its not a business transaction and should not be treated as such. If need be, kick it over to counsel and blame us that you are papering the exchange. If the loan is towards student loans or even a current program, we can work in a requirement the employee pay down over time, and potentially a forgiveness will be worked out if the person stays long enough. This concept is commonly known as a "sweat equity" arrangement.
There is the short answer - treat this as a business arrangement and protect yourself. The Worst Case scenario is the employee passes away and you would like to receive a repayment from the employee's family (or maybe even a refund from a paid-for program). With no paper, you are likely out of luck.