Ep 40: Workplace Loans to Employees

May 12, 2014

Nasir and Matt discuss the trend of employers providing loans to employees and answer the questions, “I know I need to pay some of my employees more to prevent them from leaving but I won’t have the revenue for another 6 months, what else can I do to keep them in the mean time?”

Full Podcast Transcript

NASIR: Welcome to Legally Sound Smart Business.
This is Nasir Pasha.

MATT: And this is Matt Staub.

NASIR: And welcome to our podcast where we cover business in the news with our legal twist and also answer some of your business legal questions that you, the listener, submits to ask@legallysoundsmartbusiness.com. I wanted to slow it down there for the listeners writing it down.

MATT: It sounds too candid at this point. I feel like you sounded like a robot. I mean, your voice isn’t robotic but it sounds like a recording almost.

NASIR: I do. I just play a recording at the beginning of every episode. I don’t even record it live.

MATT: Yeah, those five seconds that you spend, it’s really taxing. You want to save your voice for the actual substance of the episodes.

NASIR: Exactly. You understand me.

MATT: So, speaking of the substance of the episodes, I do want to get into the story for today because I think we might have some differing views. I don’t know why I think this but, reading through it, I just thought we did for some reason.
We’re talking about workplace loans. This primarily deals with employees that are living paycheck to paycheck. What it is is more or less what they can be labeled as a short-term, high-fee loan.
You know, an employee needs some money and the employer is lending them this money. The only problem being for the employee is these extremely high interest rates in the fees that are being involved. I think in one study they said the effective annual percentage rate attached to the loan is 100 percent to 165 percent. In my opinion, this is just digging them into a bigger hole. I mean, I understand that they need the – well, it’s not an advance – the loan but, at the same time, I feel like you almost get situations where employees are taking these loans out to pay their previous loans or maybe they went through some third party in the past and they’re paying for that.

NASIR: Yeah, and I think we talked about how most people seem to live paycheck to paycheck, whether they’re low-wage workers or not. But let’s compare this to wage advances and I think we answered a question regarding that a while back. I think this is a little bit different because, in a wage advance, the employer is basically giving the loan themselves and there are all these rules regarding that – like, for example, in New York, you have to have it in writing, especially if you’re going to be withdrawing any money from their weekly paycheck or biweekly paycheck. In California, there’s restrictions – like, if it’s the last paycheck, then you can’t withdraw any money from that and you can’t terminate an employee – and I think this is both in New York and California as well – you can’t terminate an employee because they don’t pay back the loan, for example, if it’s not deducted from their paychecks. Those are some issues with that.
But this is different because we have third-party payday lenders that are working with employers and, now, I hear you. Of course, these payday concepts, they have high interest rate and, frankly, what other loan are you aware that automatically all of a sudden they can garnish your wages?
For example, if you default on another loan, then they have to get a judgment and then take that judgment into your workplace and actually attach it. that requires some kind of effort. This is a little bit different. All of a sudden, your paycheck could be garnished from the get-go.

MATT: Yeah, to me that’s a problem. I just don’t know what the solution really is for these people that need that. I guess the problem I have is with the employer. They’re the ones paying the employees, obviously. And then, if they’re going to act as a lender, it’s two different hats they’re wearing. I mean, that’s two very separate things. I would think it’d be easy to kind of group those two things together. In my opinion, you need to keep those two different things separate if they need a loan.

NASIR: You said we might disagree on this subject. Here’s the other argument. These lending trees and whatever the other businesses out there that do these payday loans, people have been complaining how bad those are but, really, these kind of products are supposed to be an alternative to that in the sense, okay, you’re complaining about the industry. They’re actually less than the market in some of these things. Also, they couple that with kind of teaching financial responsibility, et cetera. That’s the argument but I think you and I both agree that there’s something wrong, especially what was it? Sonic that’s doing this, right?

MATT: Yeah, that was the example.

NASIR: When you have low-wage workers that are going through that, there’s just something inherently wrong with when you have loans to your workers that obviously that you’re paying them and they can’t afford a living wage where they need to take a loan. Yeah, things happen once in a while but, if people rely upon this on a reoccurring basis, there’s just something that doesn’t feel right about it.

MATT: Yeah, and now I’m upset that I said that at the beginning because we don’t disagree with this. I don’t know why that’d be the case but the employee that’s in this position, I’m not really sure what they can do though.

NASIR: Yeah, what’s their alternative?

MATT: But they have to do it then. I guess they do. Because, like you were saying, the payday loans and one of the things here, they’ve been banned in Arizona for a few years so that’s not even an option but I guess that’s the other option or just get a loan from a family member or friend.

NASIR: Yeah. From an employer perspective, whenever our clients ask us about a wage advance or even doing a loan like that, I just never think it’s a good idea. One is I think, if you do that, you should be very wary because you can get wrapped up into a discrimination lawsuit or another kind of labor law violation. Because you have this side deal with your employee, then it could be construed in different ways. And what if they don’t pay? Now the relationship is all bad. It’s just kind of trouble waiting to happen besides the actual compliance of it all. And then, adding on top of that this aspect of dealing with these other third parties with the loan, I suppose, if they’re fair loans, then maybe, but I just don’t know if that’s the case.
It kind of reminds me of these companies that bring in health experts to make them exercise more and so forth and that makes sense, right? when you have a thousand or thousands of employees, the healthcare workforce, especially if you’re self-insuring makes sense. But, if you only have a few, maybe not. In the same aspect of financial responsibility, if you have thousands of employees, you have a more efficient workforce. But, if you only have thirty or forty and you’re giving these loan products that may not be advisable to them, I don’t know how that’s a benefit to your company.

MATT: Yeah, I’m just thinking about Sonic.

NASIR: Yes, Sonic doesn’t have an advantage of making them happy because most of those workers are not going to be there on a long-term. I feel like there’s something wrong with that. I don’t know.

MATT: If it’s the employees of the Sonic that was in my hometown, then they’re definitely not there because they shut that one down for some reason.

NASIR: Probably because all their employees defaulted on the loans that they provided them.

MATT: I always thought it was a huge liability issue, for those of you who have never been to Sonic, it’s the old-fashioned you pull up in your car and they come to you and you eat in your car, but all the employees are on roller skates. I feel like, if you’re carrying a whole tray of drinks or food, there’s just got to be some bad situations that have happened there but now we’re getting off-track.

NASIR: Yeah, I know but I’ll tell you that’s a difficult job – being on skates and serving food in the food industry.

MATT: Definitely.
[MUSIC]

MATT: Let’s get into the question of the day.
“I know I need to pay some of my employees more to prevent them from leaving but I won’t have the revenue for another six months. What else can I do to keep them in the meantime?”
That’s from a coffee shop in Santa Barbara.

NASIR: Poor coffee shop owner because how are you going to keep an employee without paying them? Let alone do it legally. How are you going to do it in a way that your employees are going to be willing to do so? I mean, this isn’t a startup company where it’s like, “Oh, okay, we’ll look over the fact that you’re not paying me minimum wage against labor law violation,” in the hopes of being something bigger but a coffee shop? I don’t know.

MATT: I guess the answer is just to give them unlimited free coffee in the meantime.

NASIR: That’s true. If you pay them in coffee with an equivalent amount of minimum wage, then I suppose you could get away with that from a labor law perspective, I suppose.

MATT: If you work at any place that has food or drink or I guess clothing spots and things like that too, there’s always the perks that you have with restaurants but, I mean, in this situation, it is tough because, like you were saying, it’s not like these people are in on the ground level of some startup and they’re hoping it’s going to succeed and they’re willing to stick around. We’re talking about employee retention for when you have people that you know should be getting paid more and maybe can go find another job where they get paid more but you have to give them reason to stick around. So, I think another common theme of this podcast or culture.
If it’s an enjoyable place to work, even if you’re not paying them as much as they might be able to get somewhere else, they’re going to be more inclined to stick around. I know I personally have stuck around with a job where I was getting paid nothing or very little. I knew I could be paid something more but I just liked the job and I liked the people and I guess that may be one way to kind of do this but coffee shops can sometimes have bad hours if you have to wake up and work from 5:00 a.m. to 2:00 p.m. or something.

NASIR: Even then, you still have the risk that your employees are going to turn you in. People do this all the time and, just to hit the point home, I don’t care if you’re a startup company or a coffee shop, your employees have to be paid minimum wage. Whether you’re doing that through cash or through other means, by issuing them a stock in a company in your startup that’s not worth anything is not minimum wage – just to kind of make that very clear. It’s a very common mistake that can really haunt you later maybe down the line. Right now, maybe your cofounders and your other employers are happy but what if things go awry? It’s going to really cause a problem.

MATT: Yeah, it just might be a grind for them but you really hope they won’t spill the beans.

NASIR: Oh, I knew you were getting to something. You were gearing up. You were about to reel something in and then came right through.

MATT: Yeah. That pun wasn’t your cup of tea.

NASIR: Oh, man.

MATT: I could tell.

NASIR: Oh, gosh. You’re pretty good at these. You should go on a different show and do that and maybe not this show.

MATT: Legally Sound Smart Puns. It’ll be a spin-off of this podcast.

NASIR: I wish you success.
So, that’ll be our last episode with Matt.

MATT: Yeah, I think that’s a good spot to end it.

NASIR: Okay.

MATT: Hopefully we answered the question.

NASIR: I think so. Just basically pay a minimum wage. If you can’t, then you have to close business or get a loan to pay them. That’s the bottom line.

MATT: There you go. Maybe they can do a reverse of what Sonic is doing and the employees can loan the employer money.

NASIR: Absolutely. That’s a good idea. Do that.

MATT: Don’t do that, though.

NASIR: All right. Have a good week, everyone!

MATT: Yeah, and keep it sound and keep it smart!

Legally Sound | Smart Business

By

The Podcast Where Nasir Pasha and Matt Staub cover business in the news with their legal twist and answer business legal questions that you the listener can send it to info@legallysoundsmartbusiness.com.

Get Business Legal Updates

Please provide your full name.
Please provide a valid email address.
We respect your privacy, and we will never share your information. Unsubscribe at any time.

Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.

Latest Episodes

February 4, 2021

How you terminate an employee can make the difference between a graceful transition to avoidable negative outcomes like a dramatic exit or even a lawsuit. We gathered a panel of experts and asked them – is there a “right way” to fire an employee? We would like to thank our guests for this episode: Amr…

December 2, 2020

The COVID-19 pandemic has turned nearly every aspect of life on its head, and that certainly holds true for the business world. In this episode, Matt and Nasir explain how the early days of the pandemic felt like the Wild West and how the shifting legal playing field left a lot open to interpretation and…

November 16, 2020

After plenty of ups and downs, our buyer has finally closed on the purchase of their business. While we’re marking this down in the ‘wins’ column, it never hurts to review the game tape. In this final episode, our hosts, Matt Staub and Nasir Pasha, return to the deal almost a year later to reflect…

September 15, 2020

The ink is drying on the signature line and things are looking great for our buyer. After so much hard work, the finish line is in sight and the cheering within ear shot.   Though the landlord is still serving friction, things seem safe to move forward and for now, our buyer will be keeping…

July 31, 2020

Though things are coming along well, the journey would not be interesting if it was purely smooth sailing. After our buyer opens escrow, they are forced to push the closing date back when suddenly a letter from an attorney was received claiming the business, we are buying has a trade mark on the name!  Now…

June 12, 2020

With frustration at an all-time high and professionalism at an all-time low, our friend the Buyer has “had it” with the Seller and quite frankly their lack of knowledge. At present our Buyer is rightfully concerned that the latest misstep from our loose-lipped Seller will threaten not only the entire operation of the businesses but…

May 11, 2020

As we go deeper into the buying process, we start to uncover more challenges from our seller and encounter some of the wrenches they are tossing our way. When we last left off in episode three our team was knee deep in due diligence for our buyer, had already penned and signed the Letter of…

April 4, 2020

One word–interloper! When a new mysterious broker enters the transaction and starts to kick up dust, Nasir and Matt take the reins. The seller signed off on the letter of intent (see episode 2), yet this “business broker” serves only friction and challenges by refusing to send financials, whilst demanding more of a firm commitment…

April 4, 2020

Just as most stories and deals start out, everyone is optimistic, idealistic and full of hope for clear skies. It’s a perfect outlook with a perfect setup for the ups and downs yet to come. Peek further behind the curtain and into the first steps of buying a business: the letter of intent. After the…

April 4, 2020

When a savvy buyer hears opportunity knocking to purchase a prime positioned business, she decides not to go it alone and taps in the professionals to help navigate what could potentially be a fruitful acquisition. “Behind the Buy” is a truly rare and exclusive peak into the actual process, dangers, pitfalls and achievements, that can…

August 7, 2019

GrubHub is subject to two “matters of controversy” that have likely become common knowledge to business owners: “fake” orders and unfriendly microsites.

May 28, 2019

In this podcast episode, Matt and Nasir breakdown the legal issues of the subscription industry’s business on the internet. Resources A good 50-state survey for data breach notifications as of July 2018. California Auto-Renewal Law (July 2018) Privacy Policies Law by State Why Users of Ashley Madison May Not Sue for Data Breach [e210] Ultimate…

March 12, 2019

In recording this episode’s topic on the business buying process, Matt’s metaphor, in comparing the process to getting married probably went too far, but they do resemble one another. Listen to the episode for legal advice on buying a business.

December 3, 2018

Nasir and Matt return to discuss the different options available to companies looking to raise funds through general solicitation and crowdfunding. They discuss the rules associated with the various offerings under SEC regulations and state laws, as well as more informal arrangements. The two also discuss the intriguing story about a couple who raised over…

July 24, 2018

Flight Sim Labs, a software add-on creator for flight simulators, stepped into a PR disaster and possibly some substantial legal issues when it allegedly included a Trojan horse of sorts as malware to combat pirating of its $100 Airbus A320 software. The hidden test.exe file triggered anti-virus software for good reason as it was actually…

April 17, 2018

Attorneys Matt Staub and Nasir Pasha examine Mark Zuckerberg’s congressional hearings about the state of Facebook. The two also discuss Cambridge Analytica and the series of events that led to the congressional hearings, the former and current versions of Facebook’s Terms of Service, and how businesses should be handling data privacy. Full Podcast Transcript NASIR:…

March 10, 2018

The Trump presidency has led to a major increase in ICE immigration enforcement. It’s critical for business owners to both comply with and know their rights when it comes to an ICE audit or raid. Nasir, Matt, and Pasha Law attorney Karen McConville discuss how businesses can prepare for potential ICE action and how to…

February 5, 2018

New years always bring new laws. Effective January 1, 2018, California has made general contractors jointly liable for the unpaid wages, fringe benefits, and other benefit payments of a subcontractor. Nasir and Matt discuss who the new law applies to and how this affects all tiers in the general contractor-subcontractor relationship. Click here to learn…

January 2, 2018

With a seemingly endless amount of new mattress options becoming available, it is unsurprising that the market has become increasingly aggressive. As companies invest in more innovative solutions to get in front of customers, review sites, blogs and YouTube videos have moved to the forefront of how customers are deciding on their mattresses and how…

December 7, 2017

In recent months explosive amounts of high profile allegations of sexual harassment, assault, and varying acts of inappropriate behavior have transcended every sector of our professional world. With a deluge from Hollywood and politics, and the private workforce, accusations have inundated our feeds and mass media. This harassment watershed has not only been felt within…

November 16, 2017

If you are not familiar with the EB-5 program started in 1990 to give green cards to certain qualified investors in the United States, then you may not have been alone a few years ago. Currently, the EB-5 program has since exploded since its inception and now hits its quotas consistently each year. The program…

October 10, 2017

Government requests come in multiple forms. They can come in as requests for client information or even in the form of investigating your company or your employees. Requests for Client Information General Rule to Follow Without understanding the nuances of criminal and constitutional law and having to cite Supreme Court cases, any government requests for…

August 24, 2017

Nasir and Matt suit up to talk about everything pertaining to employee dress codes. They discuss the Federal laws that govern many rules for employers, as well as state specific nuances in California and other states. The two also emphasize the difficulty in identifyingreligious expression in dress and appearance, how gender-related dress codes have evolved…

June 28, 2017

Nasir and Matt discuss the life cycle of a negative online review. They talk about how businesses should properly respond, how to determine if the review is defamatory, the options available to seek removal of the review, how to identify anonymous reviewers, whether businesses can require clients to agree not to write negative reviews, and…

June 7, 2017

On this episode of the Ultimate Legal Breakdown, Nasir and Mattbreak down social media marketing withguests Tyler Sickmeyer and Kyle Weberof Fidelitas Development. They first discuss contests and promotionsand talk about where social media promotions can go wrong,when businesses are actually running an illegal lottery, and the importance of a soundterms and conditions. Next, they…

April 3, 2017

On this episode of the Ultimate Legal Breakdown, Nasir and Matt go in depth with the subscription box business. They discuss where subscription box companies have gone wrong(4:30), the importance of a specifically tailored terms and conditions(6:30), how to structure return policies (11:45), product liability concerns (14:45),the offensive and defensive side of intellectual property (19:00),…

February 1, 2017

Nasir and Matt discuss the suit against Apple that resultedfrom a car crashed caused by the use of FaceTime while driving. They also discuss howforeseeable use of apps can increase liability for companies. Full Podcast Transcript NASIR: Hi and welcome to Legally Sound Smart Business! I’m Nasir Pasha. MATT: And I’m Matt Staub. Two attorneys…

January 5, 2017

The guys kick in the new year by first discussing Cinnabon’s portrayal of Carrie Fisher as Princess Leia soon after her death, as well as other gaffes involving Prince and David Bowie. They alsotalk about right of publicity claims companies could be held liable for based on using someone’s name or likeness for commercial gain.

December 22, 2016

Nasir and Matt discuss the recent incidentat a Victoria’s Secret store where the store manager kicked out all black women after one black woman was caught shoplifting. They then each present dueling steps businesses should take when employees are accused of harassment.

December 8, 2016

Nasir and Matt return to talk about the different types of clients that may have outstanding invoices and how businesses can convert unpaid bills to getting paid.

November 10, 2016

After a long break, Nasir and Matt are back to discuss a Milwaukee frozen custard stand that is now revising it’s English only policy for employees. The guys also discuss how similar policies could be grounds for discrimination and what employers can do to revise their policies.

October 6, 2016

The guys discuss the new California law that allows actors to request the removal of their date of birth and birthdays on their IMDB page and why they think the law won’t last. They also discuss how age discrimination claims arise for business owner.

September 29, 2016

Nasir and Matt discuss the racial discrimination claims surroundingAirbnb and how it’s handled the situation. They also discuss some practical tips for businesses experiencing similar issues.

September 8, 2016

Nasir and Matt discuss whyAmazon seller accounts are getting suspended and banned without notice and how business owners can rectify this situation through a Corrective Action Plan.

August 25, 2016

Nasir and Matt talk about the accusations surroundingfashion giant Zararipping off the designs of independent artists like Tuesday Bassen and howsmaller companies can battle the industry giants.

August 18, 2016

Nasir and Matt discuss Brave Software’s ad replacing technology that has caught the eye of almost every national newspaper and has a potential copyright infringement claim looming. They also welcome digital marketing expert Matt Michaelree to speak on the specifics of what Brave is attempting to do and whether it has the answers moving forward.

July 28, 2016

Nasir and Matt discuss the sexual harassment lawsuit filed by Gretchen Carlson against Fox CEO Roger Ailes. They also talk aboutthe importance of sexual harassment training and properly handling such allegations in the office.

July 15, 2016

Nasir and Matt talk about the changes at Starbucks that have led to many disgruntled employees and customers.

June 23, 2016

Nasir and Matt discuss the criminal charges facing FedExinvolving the alleged transportation of illegal drugs. They also talk about how business owners should address working with customers that may be breaking the law.

June 15, 2016

The guys return after a long break to discuss why Yahoo is auctioning off over 3,000 patents and how this decision will affect the longevity of the company.

May 25, 2016

Nasir and Matt discuss the increase in the salary thresholdfor exempt employees and how employerscan try to avoid paying overtime as a result.

May 18, 2016

Nasir and Matt discuss the Baltimore law that makes it very difficult to operate food trucks in the city. They also discuss all the legal restrictions tohaving a food truck.

May 11, 2016

Matt listens to Nasir recap the developing battle in his hometown of Vandalia, Ohio over whether a Dunkin Donuts can move into a location in close proximity to a local favorite donut shop. They then discusswhether the issue is more legal or personal.

May 9, 2016

The guys kick off the week by discussing a Nevada employee who is claiming she was fired for not supporting the Scientology beliefs of her employer.

April 27, 2016

The guys discuss the massive floods in Houston,how employers responded, and why one meteorologist became a local hero. They also discuss the steps businesses should take in preparing for storms outside the workplace.

April 20, 2016

The guys discuss the boycott of Amazon over the products of an unnamed presidential candidate. They also talkabout how a business should handle a boycott and whether it’s possible to exit one unscathed.

April 13, 2016

Click here to read HubSpot’s response on this topic. Nasir and Matt discuss the trend in startups to compensate programmers and other early employees with stock options and how the company culture at HubSpot isn’t what it seems.

April 6, 2016

Nasir and Matt discuss various lawsuits against social media platforms in which users are accused of artificially inflating their social currency.

March 30, 2016

Nasir and Matt discuss the class action suit against Jessica Alba’s Honest Company for allegedlyselling products that contained harmful chemicals.

March 23, 2016

Nasir and Matt talk about the story out of Texas that Mexican restaurants were reportedly attempting to ban Trump supporters from eating at their restaurants.

We represent businesses.
That’s all we do.

Oh, and we love it.

We love our work. We love reviewing that lease for your new location. We thrive on closing that acquisition that nearly fell through. We’re fulfilled when we structure a business to grow, raise capital, and be legally protected.

We focus on developing close relationships with our clients by being like business partners. A partner who provides essential, personalized, proactive legal support.

We do all of this without utilizing the traditional billable hour model. You pay for the value we bring, not the time spent on calls, emails, and meetings.

Our team is made up of attorneys and staff that share these values and we are retained by clients who want the same.

Pasha Law PC operates in the states of California, Illinois, New York, and Texas.

Meet Our Team

Fractional General Counsel Services

Pasha Law Select offers the expertise of a high-end general counsel legal team for every aspect of your business at a fixed monthly rate. Pasha Law Select is deliberately designed to allow our legal team to be proactive, to anticipate, and to be comprehensive in serving our clients. To be great lawyers, we need to know our clients. We can’t know our clients unless we represent a select number of clients in the long-term. This is Pasha Law Select.

Learn More