Winter 2000 Practice Management Diary:

Employees may ask for loans or for salary advances to cover emergency situations. Evaluate any such request on a case-by-case basis. You might consider as mitigating factors: length of service, personal reliability, or the nature of the emergency.

If there is a retirement plan in place, speak with your pension fund manager. It is possible that the employee may be able to borrow against these retirement funds. This is ideal, as the employee is really borrowing her own money and paying interest to herself. 'A loan made from a retirement plan will typically specify the terms for payback and may specify the documents necessary. The IRS sets interest rate limits.

Other possibilities include a loan against future salary, or a loan from practice funds. If you loan against salary, the taxes aren’t paid until the salary is actually issued. You can set up the loan payment as a salary deduction (after taxes are withheld), or receive a personal payment from the employee.

If you loan from practice funds, you may set your own terms, even interest free if you like. Be sure to set up a formal repayment plan to ensure that the loan will not be confused with salary.

A written note specifying the loan amount and terms for repayment should be signed by both the employee and you and then placed in the employee's personnel file. This contractual document may be discarded upon repayment of the loan. Ask your accountant for the proper form.

State law determines what recourse the practice has if the employee terminates employment before repayment of a loan that does not involve the retirement plan. Federal law governs repayment of retirement plan loans.

Thanks to Karen Moawad for assistance in preparing this Diary.

 
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