Salary Deduction Letter to Employee for Loan

People often have to borrow money from someone to fulfill their several needs. In that situation, they try to find such a person or organization that can lend them money at a low-interest rate with an easier repayment plan. Some people also borrow money from their company.

Organizations that trust their employees get convinced to lend money to them whenever they need it. Many companies allow their employees to return the money in the form of installments. Some companies also allow employees to make their salary deductions to get their loans paid off.

What is a salary deduction letter for a loan?

This is a type of announcement letter that a company writes to the employee when it deducts the salary of the employee because of the amount he has borrowed. It is a very important piece of writing because employees want to know why their salary has been deducted.

When to write the salary deduction letter?

In many situations, it is inevitable to write this letter. However, at times, it is also decided by the loan agreement that has been signed between the employee and the company. For example, the company can add a clause in the agreement regarding the loan repayment. It can bind the employee to pay the loan back in six months or the company will deduct from the salary of the employee.

In some cases, the employee himself allows the organization to deduct his salary because he finds it to be an easier payment plan. In that case, they write an authorization letter to the company allowing it to deduct a percentage amount from his salary.

Tips for writing to the employee about salary subtraction:

Describe in a soft tone:

It is bad news for an employee that he will not receive the full salary of the current month. So, try to give this news in such a way that it does not offend the employee much.

Refer to the loan agreement

If you have followed what was agreed upon in the agreement, give a reference to that agreement. You should sound logical and reasonable when you talk about the repayment. For this purpose, give references that support your action of salary deduction.

Mention the amount deducted

Tell the employee that how much amount the company has deducted. Make sure that the deduction is also in accordance with what has been written in the loan agreement that was signed when the loan to the employee was granted.

Don’t get angry:

If you are writing after you have seen the employee not paying on time and you are annoyed by his behavior, you still need to show positive behavior and use a formal tone while informing the employee about the subtraction.

Be kind:

In case you think you should be kind enough to allow your employee to choose another repayment plan, mention it in the letter.  If there is any way by which the company’s decision to deduct the salary can be reversed, let the employee know about it.

Below is a sample letter that will give you a clear idea as to how you can appropriately draft this letter.

Sample letter:

Effective date:

Name of the employee


Subject: Salary deduction due to loan

This letter is being written to inform you that the company has decided to deduct your salary due to the money that you have been loaned as per the agreement with you. According to the agreement, you are supposed to pay the loaned money back to the company within one year. However, if you cannot pay, the company will have the right to deduct 5% of your salary every month to make up for the money that you have been given as a loan.

If you don’t want to pay off the loan through your salary deduction, please write us back and let us know that when and how you want to pay us back and what alternate method you have in your mind for clearing the loan. We will look forward to your reply.


Name of the recipient

Designation of the recipient



File: Word (.docx) 2007+ and iPad
Size 23 Kb