Dubai: You’re in a crunch and can’t apply for a loan with a bank. Can your employer help?
While some companies in the UAE may offer financial assistance to their employees, it’s essential to understand the implications and evaluate the pros and cons before entering such an agreement.
Gulf News spoke to legal experts in the UAE on what employer-sanctioned loans are and what you should know before getting into a loan agreement with your company.
What are employer loans?
Employer loans are financial advances that some UAE companies may offer to their employees. These loans are typically repaid through salary deductions over an agreed period. However, providing such loans is not legally mandated; it is at the discretion of the employer and often subject to internal company policies.
“The employer providing loans to employees is not obligatory by law, and companies are not forced to provide loans to their employees. It is an initiative by companies to help their employees, which is usually subject to the internal regulations of companies,” Aeeda Ibrahim, senior associate at Galadari Advocates and Legal Consultants, said.
“In common parlance, employer loans can be referred to as a ‘financial help’ provided by an employer to an employee. The employee will then be required to repay the amount over time through salary deductions or other means. These loans are often offered as a benefit or to support employees during times of financial need. However, the specifics of such loans can vary from one company to another, as there is no codified federal legislation that exclusively governs such loans. Instead, these arrangements are usually subject to internal company policies and employment contracts, along with general principles of contract and labour law in the UAE,” Rajiv Suri, senior associate at Al Suwaidi and Company advocates and legal consultants told Gulf News.
The employer providing loans to employees is not obligatory by law, and companies are not forced to provide loans to their employees. It is an initiative by companies to help their employees, which is usually subject to the internal regulations of companies.
Do all companies provide loans?
Not all companies provide employer loans. As mentioned above, offering such loans is not mandatory, and availability often depends on the company’s size and policies, according to the experts who spoke with Gulf News. Larger corporations or government entities are more likely to offer this benefit as an employee retention policy and it is best to consult your company’s Human Resources (HR) department to get more information on whether this option is available to you.
How employer loans help
So, you find out that your company does offer loans to workers. Should you take it? Or is it more advisable to apply with a bank instead?
According to the experts, it is important to consider the advantages as well as drawbacks.
“It helps the worker reduce the burdens of financial life and helps him or her have stability at work. There is flexibility in paying instalments in terms of the period that the employer may grant and the worker pays the principal amount of the loan without interest and without incurring large sums,” Rehab Demardash, trainee lawyer at Galadari Advocates and Legal Consultants, said.
The specifics of such loans can vary from one company to another, as there is no codified federal legislation that exclusively governs such loans. Instead, these arrangements are usually subject to internal company policies and employment contracts, along with general principles of contract and labour law in the UAE.
Your instalment cannot exceed 20 per cent of the salary
She also spoke about how Article 25 of the UAE Labour Law – Federal Decree Law No. 33 of 2021 – stipulates the maximum percentage of the salary that an employer can deduct as instalments in such a case.
“The employer is obligated to deduct a percentage not exceeding 20 per cent of the salary. The Labour Law has specified the cases in which amounts may be deducted or deducted from the worker's wage,” she said.
Article 25 (1) allows employers to deduct the salary to recover loans granted to the worker, within the maximum monthly deduction rate from the worker's wage, which is 20 per cent, after the worker's written consent, and without any interest. Article 25 (2) allows employers to recover amounts paid to the worker in excess of his or her entitlement, provided that what is deducted does not exceed 20 per cent of the wage.
The employer is obligated to deduct a percentage not exceeding 20 per cent of the salary. The Labour Law has specified the cases in which amounts may be deducted or deducted from the worker's wage.
What about the drawbacks?
“Companies may not offer large loans compared to banks. If you need a significant amount of money for a mortgage or a major expense, employer loans may be insufficient, as they may be capped based on salary or internal company policies,” Suri said.
“Further, if you lose your job or decide to leave the company before the loan is repaid, you may be required to settle the outstanding loan immediately which will be deducted from your final settlement. This can create financial pressure,” he added
According to Aeeda, getting a loan from your employer can also contribute to significant psychological pressure, which may affect your productivity and performance, and also make it harder to take on a new job, which may provide a higher salary.
This is why employees were strongly advised by all the expets to only take on loans if absolutely necessary.
“The worker should try to reconcile income and living obligations, and try to spend in a manner that is commensurate with his or her living and necessary needs, and that the loan should be to meet necessary needs, and not just for extravagance and spending on secondary things to avoid falling into future disputes,” Aeeda said.
“For employees, in my view, it is important to approach with caution, taking into account their financial needs so that it doesn’t lead to any unforeseen results at a later date … it is always better to be conservative when you borrow. Avoid taking on more debt than necessary or only limit yourself to the amount that can be easily paid back,” Suri said.
Reduced financial burden: Employer loans can alleviate financial stress for employees, with a relatively quicker process.
Flexible repayment: Repayment terms can be customised to suit the employee's financial situation.
Interest-free: Unlike bank loans, employer loans are often interest-free.
Disadvantages of employer loans
Loan limits: Compared to banks, employer loans may have lower maximum amounts.
Harder to change jobs: If an employee leaves the company before the loan is fully repaid, they may face immediate repayment obligations.
Terms may not be favourable: The terms and conditions are largely determined by the employer, which may not in employee’s best interests.
