0067: Contractors Success Map Why It Pays To Offer Employee Advances

This podcast is episode number 0067 and it will be about Why It Pays To Offer Employee Advances

Sometimes Construction Company Employees Need A Little Cash Between Paydays. Owning a contracting company with employees and a burning desire to generate a profit means  you need to do whatever you can within reason to help keep them focused on their job.

If a need arises for cash between paydays they have several options and here are two of them:

Option #1 - They get a payday loan from one of the many companies that offer that service.

A typical 14-day advance of $100 will cost them roughly $15 which is approximately 391 percent annual interest rate. If they do it regularly, it can cause your good employee to get deeper and deeper in debt which means their cash flow problem gets worse not better.

When do they visit the payday loan store? If they are paid for travel time to and from the jobsites they will typically do it on your time. Run the numbers and you will know it takes roughly ten minutes each way for the detour to and from the payday advance company plus ten minutes inside the store which totals 30 minutes.

For Example: You pay your employee $25.00 per hour and they waste 30 minutes:

Ten Minutes spent on personal business during company time costs $5.94
Multiplied by three to get to 30 minutes = $17.82. If your company earns 10% net profit you need to sell $178.20 more work to make up the loss you suffered. For more on how I arrived at the numbers please visit www.FastEasyAccounting.com/ten

We Live In A World Of What Is; NOT A World Of What Should Be - Randalism

Option #2 - Put a process in place from your Business Process Management System (BPM) for employee loans or advances, whatever term you use to describe it.

Understand the Randalism "You can be right or rich...pick one" If providing employee loans goes against your principles don't do it. If it aligns with your principles do it. There is no right or wrong answer.

Never, ever charge interest on the "loan" they will not like it and they will get even. Make it Fast And Easy. Give out cash and have them sign a simple I.O.U. or write a quick note on a piece of paper or you can download a sample loan agreement at www.fasteasyaccounting.com/ela

Understand that unlike a Promissory Note, where the borrower is in control of making repayments, the employer can control repayments of an employee loan. It is very important for you, the employer, to get written authorization to deduct money from any payroll check. You need to be specific about the reason for deduction; repay cash loan / advance.

The employee loan or debt agreement below also makes provision for the full amount to be deducted should the employee resign. The employer would therefore be wise not to extend loans greater than the weekly / monthly salary.

A more extensive agreement should be drawn up for longer term or large loans. Your labor laws may also limit deductions to a percentage of gross remuneration, so check with your local laws or your attorney before extending credit. You can download a sample at www.fasteasyaccounting.com/ela

Put the paper in the Petty Cash box, give it to your bookkeeper or better yet if we are doing your bookkeeping send it to us or send us an email and we will take care of the paperwork for you.

I recommend you give cash, do not write a check because they will simply visit the bank, check cashing store and cost you money like in the example above.

In QuickBooks Setup An Employee Loan Process and the related report to keep track of loans and repayments. To see how the report will appear in QuickBooks go to www.fasteasyaccounting.com/ela

Whenever you issue a loan record it in QuickBooks and the report will show an increase in that persons loan account. Whenever a payment is made through payroll or if they pay it back via cash or check make the appropriate QuickBooks entry and the report will show a decrease in that persons loan account.

Whenever an employee loan account has a zero balance their name does not appear.

I trust this will be of value to you and your feedback is always welcome at www.FastEasyAccounting.com/podcast

This is one more example of how Fast Easy Accounting is helping construction company owners across the USA including Alaska and Hawaii put more money in the bank to operate and grow your construction company. Construction accounting is not rocket science; it is a lot harder than that and a lot more valuable to construction contractors like you so stop missing out and call Sharie 206-361-3950 or email sharie@fasteasyaccounting.com

Thinking About Outsourcing Your Contractors Bookkeeping Services?

Click On The Link Below:

www.FastEasyAccounting.com/hs

Need Help Now?

Call Sharie 206-361-3950

sharie@fasteasyaccounting.com

In closing I want to caution you that we may or may not be a good fit for your contracting company. This guide will help you learn what to look for in outsourced construction accounting.

Thank you very much and I hope you understand we really do care about you and all contractors regardless of whether or not you ever hire our services.
Bye for now until our next episode here on the Contractors Success MAP Podcast.

Warm Regards,

Randal DeHart | Contractors Accountant