Salary advances and staff loans in a shop
How a shop gives staff advances or loans under a written policy, recovers them from each pay run in Achekam, and handles a balance when someone leaves.
By Achekam · · 4 min read · For Retail businesses in South Africa, Nigeria, Kenya
Every shop owner knows the conversation. A cashier's child needs school shoes, a shelf packer's rent is due before payday, a supervisor's car has broken down. They ask for a little of their wages early, or a loan they will pay back over a few months. Saying yes builds loyalty. Saying yes casually, with the amount written on a scrap of paper in the cash office, is how shops lose money and good staff fall out with each other.
An advance or loan is a small credit agreement between the business and an employee. Treat it that way: a written policy, a written agreement, a record in payroll, and recovery that happens on its own. This article shows how to do that in Achekam.
A written advance and loan policy
Before the next request, write a one-page policy and apply it to everyone. It should answer:
- Who may ask. For example, staff who have completed their probation.
- How much. An advance up to a share of wages already earned this month; a loan up to a ceiling you set.
- How it is repaid. In one deduction for an advance; over a set number of pay periods for a loan.
- Interest. Most shops charge none, but an interest-free loan can have tax consequences. In Kenya, KRA's More about PAYE explains how PAYE applies to employee benefits and low-interest staff loans, including the fringe benefit tax on them, with a worked example. South African and Nigerian employers should ask their accountant how their own rules treat such loans.
- Limits. One loan at a time; no new loan until the last is repaid.
- Who approves. Someone other than the person asking, and other than whoever runs payroll.
Have each employee sign an agreement for each advance or loan, stating the amount, the deduction per pay run and what happens if they leave. Employment law in each country has rules on deductions from wages, so check them with your adviser; a signed agreement is the starting point for any deduction.
Recording the advance or loan against the employee
In Achekam, salary advances and staff loans are recorded against the employee and recovered from each pay run until repaid.
Record it before the money leaves, not afterwards. Then pay it out through your normal payment route, with the same bank account controls as wages: an employee's bank account entered or changed by one person must be verified by another before it is paid through the payment schedule or bank file. A request to pay a loan into a "new" account deserves the same suspicion as any bank change; see ghost workers and bank verification.
Recovery from each pay run until it is repaid
Once recorded, the recovery happens on each run until the balance is cleared. Pay runs can be monthly, fortnightly or weekly, so a weekly-paid packer's loan is recovered weekly and a monthly-paid manager's monthly.
That automatic recovery is the main reason to record advances in payroll rather than in a cash book. Nobody has to remember to deduct, and nobody can quietly forget for a friend.
Watch for hardship. A deduction that leaves an employee with too little to live on leads to the next advance request, and the cycle repeats. If the same person asks every month, the conversation to have is about their pay or their finances, not another advance.
Approval by a second person
Every pay run is approved by someone other than the person who prepared it, nobody can approve a run that pays themselves, and an approved run is never recalculated.
For advances, this matters twice. The approver should check that every new advance or loan in the run has a signed agreement behind it, and that no one in payroll has given themselves an advance. And because an approved run is never recalculated, a wrong deduction is put right on a later run, not by reworking the approved one.
What the payslip and the wages journal show
Payslips are PDFs with the business's logo and details, downloadable or e-mailed one per person, and an employer setting sends them automatically when a run is approved, with a delivery log. Check the first payslip after a new loan to make sure the employee can see the deduction and understand it.
An approved pay run is posted to the business's own ledger as a wages journal, with amounts owed to the tax authority and funds shown as liabilities. Ask your accountant to look at the journal the first time a loan is recovered, so that the money you lent and the money coming back are recorded the way they want, typically as an amount owed by staff that reduces as the deductions come in.
When someone leaves with a balance still owing
Sooner or later, someone resigns with a loan still outstanding. There is no separate final-settlement pay run in Achekam; final pay goes in as variable inputs on the leaver's regular run, and so does the last recovery.
When a resignation lands:
- Check the outstanding balance on the employee's record.
- Read the signed agreement: what it says about recovery on leaving.
- Deduct from final pay only what the agreement and the law allow.
- Agree in writing how any balance left after final pay will be repaid.
- Decide, and record, whether to write off what cannot be recovered.
Commission and bonus timing can complicate final pay as well; see year-end bonuses through payroll and, for commission-earning staff, agent commission through payroll.
Write the policy this week, have it signed by everyone who currently owes the shop money, and record every open advance in payroll before the next run.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
