How to Collect Debt From Employees

you owe me money. image by Ken Pilon from

Debt collection from current and former employees is of prime concern to an organization. An increasing number of companies offer employees to take advantage of loans from their company on relaxed terms, provided the company still expects timely recovery of the loan.

The regular procedure to collect debt is governed by the loan contract which stipulates that the company will deduct periodic payments from an employee’s salary. However, in some cases, the company may allow an employee to defer payment. If an employee fails to make timely payments or the debt turns bad, the company is left with no choice but to begin the recovery process.

Provide a written notice to the employee, preferably hand-delivered. The notice should be signed by a debt collection officer and must be served at least 30 days prior to making any offsets against the employee account. The notice should clearly mention the company’s intention to collect debt by means of deduction from the employee’s current disposable pay account.

Give the employee an opportunity to voluntarily enter into terms of repayment with the company and propose a repayment schedule. If the employee responds, enter into a written agreement with the employee including all details of payment of debt.

Arrange a hearing by an impartial hearing official by filing a petition concerning the existence of the debt and the repayment schedule, if the efforts for voluntary recovery have already failed. The employee must consent before the hearing that she will accept the decision taken by the hearing official.

Explain to the employee that knowingly false statements can lead to disciplinary action or criminal penalties. Mention any rights and protections available under the law.

Serve a final notice to the employee explaining that, due to the employee’s negligence and unwillingness to pay, the company is left with no option but to adjust the debt from current pay or funds in possession of the company. The notification must mention that debts that are later waived or found not to be owed to the company will be refunded to the employee.


  • "Termination Of Employment: A Best Practice Guide"; Kiely Caisley; 2008
  • "Managing A Global Workforce: Challenges and Opportunities In International HRM;" Charles Vance and Yongsun Paik; 2006

About the Author

Kevin Sandler started his writing career as an academic researcher in 2005, and has since than been involved in writing for various magazines and academic specialists including Academic Knowledge, Scholastic Experts and eHow, among others. His specialities include personal finance, investments, business and project management. He has a Master of Science in finance from Tulane University, and is actively involved in the finance profession.

Photo Credits

  • you owe me money. image by Ken Pilon from