A $250,000 ‘forgivable’ employer loan breaks down to just $25,000 a year — and can come with a hefty tax bill When an employee leaves a business, the company pays for the departure.
In fact, the Society for Human Resource Management (SHRM) (1) estimates that the costs of replacing a worker can range between 50% and 200% of the employee’s salary
This includes direct and indirect costs like severance pay, recruitment, onboarding, training, lost productivity and temporary staffing. In light of this high price, it’s not surprising that some companies take creative approaches to try to deter top performers from leaving. For example, some businesses may even offer forgivable loans (2) to attract and keep talent.
But how exactly do these work and are they a good idea for employees to accept? Must Read Let’s pretend we have a worker named Liam whose company sent him a promissory note for a $250,000 forgivable loan. It is a 10-year loan at 4.87% interest, but for each year that Liam stays with the company, a portion is forgiven.