Confused about whether you can give your employee a loan? Here's what the National Credit Act says
It's common for employers to give their employees loans as a fringe benefit. These loans could be for anything from helping their employees put their kids through school, servicing their cars or even putting down a deposit on a new house.
But the National Credit Act (NCA) has some employers wondering if they can do this legally.
To help relieve some of the confusion, we're revealing what the NCA actually says about granting your employees loans...
This is what the NCA actually says about giving your employees loans
The NCA says you can give your employees loans, but you'll have to register with the National Credit Regulators (NCR) if:
- You have at least 100 or more active loans with your employees; and
- Your total loan book exceed that of R500 000.
So consider how many loans you give your employees. If your company doesn't meet either of these requirements, you can continue giving your employees loans without registering with the NCR.
But be warned, if you charge interest on those loans that all changes.
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Here's what the NCA says about charging your employees interest on loans
If you charge interest, at any rate, you need to register with the regulator, regardless of the first two conditions.
However, there are some benefits to registering your company with the NCR.
Registering gives your company some recourse. Because you'll need to operate as a normal credit provider and do credit checks and get your employee to sign a legal agreement, you have ways to deal with employees that default on loan payments.
So even though you don't have to register with the NCA if you don't meet the two requirements above, you might want to consider it.
Just don't forget that giving your employees loans counts as a fringe benefit. Check out the Fringe Benefit Guide
to find out how to tax them.
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