Interest-free 'green loans' for employees
Understanding interest-free loans: a guide for businesses
Hi, I’m Tom, the founder of Grizzle. I want to share a helpful tool we’ve employed at our animation studio, something I believe more businesses could benefit from if they had a clearer understanding of how it works.
Here’s an intriguing fact: employers can provide employees with interest-free loans of up to £10,000 per year without attracting additional taxes for either the business or the employee.
There are a few conditions to meet, which are conveniently outlined this blog post. The key point is that as long as the total outstanding loans from an employer to an employee do not exceed £10,000 in any tax year, everything is fine.
The employee pays back the loan in full, making it a mutually beneficial arrangement for all parties involved.
Tackling the initial costs of solar
At Grizzle, we utilize this advantage to help our team tackle the hefty initial expenses associated with home renewable energy installations. This helps us reduce the day-to-day carbon footprint of our animations. Meanwhile, the employee gets to reap financial benefits from the installed equipment for the duration of its operational lifespan.
This approach is a boon for your employees, giving them access to long-term benefits they might not have been able to avail otherwise.
Moreover, it’s beneficial for the business and in our case, helps us minimize our carbon footprint.
There are a few considerations to keep in mind, which are discussed in the parapgraph below.
Additionally, we’ve included templates of the simple legal documentation we used.
A quick disclaimer: these templates are provided for information purposes only. Please consult with a legal advisor before using them.
🖹 Employee-Interest-Free-Loan-Agreement-Template 🖹
Things to think about:
How long should the payback period be?
Totally up to you, our employee asked for 3 years and we agreed, seemed sensible. This would probably be a top limit for us.
How does the loan get paid back?
We handle the repayment by deducting the loan amount directly from the employee’s monthly paycheck.
What happens upon the employee leaving?
We were aware that some companies require employees to repay the loan in full upon departure. However, we found this approach too harsh and decided against adopting it. While we understand that such a policy might work for larger companies, it doesn’t suit our work culture. Of course, the loan still needs to be repaid but if required we’ve allowed the repayment terms to be revised. This gives employees the flexibility to settle the loan sooner or even pay it off in one lump sum if they choose.
What happens if everyone wants the loan all at once?
Indeed, handling multiple loan requests at the same time can be a challenge that needs careful management by the company. For our small 5-person team, this is easily manageable. However, for larger organizations with thousands of employees, the approach would need to be different. We’d love to hear your thoughts on this. Perhaps a tiered system could be implemented, offering the first options to longer-serving employees?
Who is eligible for the loan?
At Grizzle, any employee who has been with us for more than 18 months is eligible for the loan.
How many times can an employee apply for one of these loans?
We haven’t established any firm rules regarding how often an employee can apply for these loans. However, we do insist that an employee can’t have more than one loan active at the same time.
Must the loans be for environmental purposes?
At Grizzle, that’s the case, yes. We’ve put this internal rule in place to aid in reducing our Scope 3 carbon emissions.
As a small studio with three out of our five staff members working permanently from home, we are deeply concerned about the amount of energy our team consumes and its source. We diligently track this to monitor our Scope 3 emissions.
A quick solution is encouraging our staff to switch to a green energy tariff at their homes. While we do offer incentives for this transition, it only gets us so far since not all “green” tariffs are as eco-friendly as they appear.
So, how can we further reduce emissions? We have two options:
- Reduce energy consumption by turning off computers, lights, etc.
- Install renewable energy sources on-site
The first option isn’t entirely feasible – while we always aim for efficiency, creating animations is integral to our business. This means we have to acknowledge a certain level of energy consumption is inevitable. As for the second option, our interest-free ‘green loans’ offer an ideal solution.
Animating with solar power 🌞
As of this writing, we’ve just issued our first loan for a solar installation and are in the process of planning loan #2 for another team member.
Our Animation Director was the recipient of our first loan, using it to fund an £8,000 solar installation at their home. This will be repaid over a three-year period. The repayment terms conveniently match the savings on electricity costs that the solar panels will provide. These magnificent solar panels are projected to generate 3,700 kWh of carbon-free energy per year (equivalent to driving an electric car for about 13,500 miles) and are expected to save around 2 tonnes of CO2 emissions annually. An added bonus is that solar installations can also increase a home’s value.
Employee interest free loan template
Below, you’ll find a copy of the legal document we use for our employee loans.
🖹 Employee-Interest-Free-Loan-Agreement-Template 🖹
Please note that this is provided for informational purposes only. We strongly recommend seeking your own legal advice before using this template.
We hope that this guide has been useful. We hope that you’ve enjoyed the animations in it too, selected from a few recent projects with sustainability at their hearts!