Employee Loans

How employee loans work

A loan (or salary advance) is money the company gives an employee and recovers from their salary in equal monthly instalments. There is no interest. Bizmagnet builds the instalment schedule, deducts each instalment in payroll, and keeps the balance up to date.

• Each month, payroll deducts the monthly instalment (or the remaining balance, if smaller) in the loan deduction column of the payslip.
• An employee can have more than one loan; each has its own schedule.
• The total loan deduction is limited by the employee's Max Loan Deduction Percentage (%) on the employee's Allowance tab (25% by default).

1. Set up loan types

Open Loan Type in the HR masters and add the kinds of loan you give, for example Salary Advance, Personal Loan, Housing Advance. A loan type has only a code and an English and Arabic description. See HR Masters.

2. Give a loan (Loan Entry)

1. Open Loan List and click Create Loan Entry.
2. Select the Employee Code. Any loans the employee already has appear under Old Loan Distribution – check them before giving a new loan.
3. Choose the Loan Type and enter the Loan Amount.
4. Enter either the number of months or the monthly amount:
   • type Installement Period [Months] → Monthly Deduction is calculated, or
   • type Monthly Deduction → the number of months is calculated (rounded up).
5. Set the Deduction Start Date – the first payroll month that should deduct. The schedule appears in Current Loan Distribution (month, amount, balance).
6. Optionally fill the Requested section (who asked and why) and, under Financial, the Credit Code (the cash or bank account the money is paid from) or a Supplier if the loan is paid through a supplier.
7. Click Save. You'll see "Loan Entry Created" with the document number.

A 6,000 SAR advance recovered in 6 instalments from November.

3. Post the loan to accounts (Loan Posting)

Posting creates the accounting entry for the money paid out: the employee's loan account is debited and the cash, bank or supplier account is credited.

1. Open Loan Posting and choose Loan Entry.
2. Set Date From / Date To and click Run. Unposted loans in that period are listed.
3. Tick the loans and click Post, or click Post All to post every loan in the date range.

The same screen, with Loan Settlement selected, posts early repayments (section 5).

4. Skip a month (Loan Deferment)

If an employee needs a break from repayments – for example during Ramadan or the month of their annual leave – defer the instalment.

1. Open Loan Deferment, choose the Employee and then the Loan. The amount, amount received so far, balance and schedule are shown.
2. Tick Deferment on the month(s) to skip and type a Remark (e.g. "Annual leave month").
3. Click Save. Payroll skips those months, and the schedule moves one month further out for each skipped month.

Months that are already Paid through payroll can't be deferred. Reopen the loan in this screen afterwards to check that your deferment was saved.

5. Repay early (Loan Settlement)

When an employee pays back all or part of a loan in cash or by bank transfer:

1. Open Loan Settlement and click Create Loan Settlement.
2. Select the Employee. Their open loans are listed with the balance of each.
3. Tick the loan(s) and enter the Receipt Amount (whole numbers, not more than the balance). The tick in the header fills every loan with its full balance.
4. Choose the Debit A/c (the cash or bank account receiving the money), if your company allows it, and add Remarks.
5. Click Save, then Post.

6. Loan requests from employees

If you use Employee Self Service, employees can request a loan themselves. The request goes through your approval workflow, and when the last approver approves it, Bizmagnet creates the Loan Entry automatically. HR then only needs to post it.

Practical scenarios