Tricky situation with employee

[GrumpyOldHorsewoman]

DH and I run a business which employs around 12 people. Recently, our formerly excellent manager has gone a bit off the rails - leaving his partner for another employee, coming into work after drinking and going through all his money (he is on a good package) and now he's handed his notice in. He has asked our accountant to pay him his outstanding holiday pay before he leaves as he wants to put a deposit on a house. However, he has been living here rent free/no bills in addition to keeping his horse here for free plus a take-home pay of over £400 per week and has no money at all - he is spending it before his next pay is due (fortnightly) and has borrowed money off others. Normally, I would say this is none of our business, but last year DH acted as a guarantor on a loan for him which was intended to pay for expensive dental work. He has defaulted on the loan this month - we have just paid his last instalment which we have deducted from his pay this week - and I think there is still over £2000 left on it. If I pay him all he is owed before he leaves and he spends it all (more than likely), we will then be liable for paying off his loan if he fails again to pay it. Do we have any legal recourse to his outstanding salary/holiday pay to get this loan paid off? He is not owed as much as is outstanding on the loan, but at least we wouldn't be stung for the full amount. Any other legal suggestions that may help us gratefully received. TIA

This honestly sounds like a situation where you need proper legal advice to sort out the bits. Am no expert at all, but my 2porth
I think the fact that he has been living rent free but not saving anything might not be relevant.
If the loan agreement isn’t tied to his employment contract, can you hold one against the other?
I don’t think you have to offer an advance on his final payment though.

I think it would be perfectly reasonable to decline to advance his final salary given that he has outstanding liabilities. It was crazy to be his guarantor for this loan. Only ever guarantor a loan if you don't mind losing the money.

I don't think you would be unreasonable to make the whole payment of what is owed to him paid directly to the creditor for this loan, and give him a payslip showing that he has been paid in full with 100% having been deducted to repay the outstanding debt.

However I am not a lawyer and I do not know if that would be legal despite being entirely reasonable.

Never ever ever be a guarator for a debt unless you would cheerfully make a gift of the whole amount of the liability. That is effectively what you are doing when you sign a guarantor agreement - you are then trusting the debtors good nature to agree to pay but they have no legal obligation to do so.

What was the arrangement for the guarantor loan? That to be sounds a private rather than professional arrangement, your husband signed as a mate not an employer and with nothing in writing then your husband is fully liable for the debt.

What's the rent free stuff about? If it was given as a perk of the role then again, it's not relevant provided he vacates the property when his employment ends.

Don't give him any advance payments. But provided you have no legal deductions in his contract (for training or any assets he may have access to such as a car or property) he is owed his salary.

Depends if Your DH is a personal guarantor or if the business was the guarantor. If the business was then it might be legal to withhold money in order to pay the loan but if personal then you have no recourse through the business. Your best bet might be through small claims court.
If you can though, sit down and try to empathise and see if he will volunteer not to have this pay and will sign to that effect.

PS you sound kind. I’m sorry he has taken advantage.

Oh yes and rent free housing has no baring on the matter I’m afraid (other than morally).

Please be careful about unlawful deductions from his salary.

Unless you have expressly stated in his Contract that you will do so, you can't deduct the loan payment from his salary.

I'm concerned that you say your DH was guarantor but then say the business has made deductions from this employees wages in respect of the loan payment your DH has privately been forced to make. That sounds like an accounting mess as well as a potential unlawful deduction from wages claim.

Hopefully you mean the business was guarantor, and that you have a signed agreement with the employee stating that repayments can be deducted from his salary...

Assuming that is the case, then yes you can make deductions from his final salary/holiday pay in respect of additional monies the business has been forced to pay out for this loan and is therefore owed.

You don't have to pay him his holiday pay in advance, absolutely not.

If your DH is personally guarantor that is entirely separate from the business and this employee's salary and holiday pay are completely irrelevant.

The stuff about rent and horse etc are also all irrelevant. Hopefully you've learned a lesson here about crossing lines with staff - it frequently ends in a complete mess IME.

If the business wasn't the guarantor, then you have no right to make any deductions from his salary if he hasn't agreed to repay your DH by that method - sorry. That is completely wrong. I would reverse that deduction if you can.

A guarantor is liable for the debt so you may well be paying it off for him in the meantime. If your husband is a personal guarantor then the business has no claim to the money at all - again sorry, I know it's not what you want to hear.

Sorry - don't think I was clear. We haven't been deducting the payments from his salary - we have trusted him to make the monthly payments himself and, although the direct debits frequently bounce (we also get a statement from the loan company) the payments have always eventually been met, However a few days ago the loan company contacted DH as the represented DDs had bounced. DH asked our employee who told him the money had been paid, but a subsequent call to the loan co revealed that it had bounced and that the payment had to be made by card that day. DH paid it and our employee agreed for him to take the amount from his salary this week. The fact he has had completely free living during his time here is relevant to the fact that, even with no living expenses at all, he has been unable to manage his money. With his situation about to change, he now has to fund his own living so it is therefore highly unlikely that he will make his loan payments. The loan co were aware that DH was acting as guarantor as his employer, but that is irrelevant - I have already told DH that he is unlikely to have any claim to any part of his final pay and I also didn't want him to act as guarantor in the first place. I think he's learnt the hard way but this man was an exceptional employee for the first year he was here and DH had no cause for concern - he thought he was helping him out as he had expensive dental treatments to pay for.

If he's a manager and has gone off the rails like this - does he have access to any company funds for anything?

"We haven't been deducting the payments from his salary ......DH paid it and our employee agreed for him to take the amount from his salary this week."

Which is it?! If you have his signed consent to make the deduction that's better, but still, surely an accounting headache in terms of making sure the reduced salary and extra personal payment to your DH from the business are dealt with properly especially for tax reasons?

"he fact he has had completely free living during his time here is relevant to the fact that, even with no living expenses at all, he has been unable to manage his money"

But his ability to manage his money or otherwise is none of your business and is not at all relevant to the rights of the business in terms of payments owing to the employee.

EBear no - his role is not administrative, he's 'on the floor' managing staff and the day-to-day operation of the yard, so he doesn't have access to any company banking or other financial means.

flowery I don't have a signed consent, just verbal, but there is time to get a signed one before his next pay is due on Friday as I can amend the amount paid to him at any time up until midnight tomorrow. I know his money-management skills are none of my business, I did say that in my OP, but I was just illustrating the point that he is highly likely to default on this loan now that he does have to pay his own living expenses on top of whatever else he is spending his money on. Incidentally, before he handed his notice in he was discussing the possibility of cashing in his holiday entitlement to clear the debt and halt the interest, but what he was owed on unused holiday didn't cover the remaining loan.

I have spoken to DH and told him he has no prospect of claiming from the employee to pay the loan and he is resigned now to the fact that he may just end up having to pay it himself eventually. I'm just hoping that our employee honours his debt and makes his own repayments although I'm essentially a realist and think we will probably end up paying it off at some stage in the future. I've warned DH not to be so naive in future! He just thought he was helping him out.

I don't have a signed consent, just verbal, but there is time to get a signed one before his next pay is due on Friday

Do it! Get the written agreement now.
Don't pay accrued holiday pay until he actually leaves, or he could get paid then not come in after that.
Let the OW worry about his finances.

"flowery I don't have a signed consent, just verbal, but there is time to get a signed one before his next pay is due on Friday as I can amend the amount paid to him at any time up until midnight tomorrow"

Consent aside, I suggest you speak to your accountant about your plan for the company to make a deduction from an employee's salary in respect of a personal debt the employee owes to your DH. I imagine your accountant will say don't do that.

It sounds as though it's just as well - for the company - that DH guaranteed the loan personally. The manager sounds disruptive enough for the business! If I were an employee (not the manager or the one he's shagging), I'd already be annoyed by the favouritism shown by the owner (DH), potential favouritism of one of my colleagues by the off-the-rails manager, etc. I'd be even more pissed off to see the business lose money which could be my wages, or a pay rise or bonus.

Your DH miscalculated with this employee. Don't compound the mistake by upsetting the others, who haven't caused you this trouble!

purits as the wages are calculated Weds-Weds and paid on a Friday, we will still have 2 days in hand when he leaves, so he won't be getting anything before it's due.

flowery I'm definitely coming around to your way of thinking. I think I will pay him his full wages and just ask him to repay me the money he owes DH (I'll keep DH out of it!) I'm sure he will - he's not a bad person, just distracted by whatever stuff is going on in his personal life. Plus he's got another 2 weeks to work of his notice and he's unlikely to withhold payment and have to still show up every day (and he will show up - he needs the money).

Riot he has actually been quite an asset - he's very good at his job (or was, before all this kicked off just before Christmas) and respected by the other staff and our customers. DH is always helping out anyone who needs it as our industry is typically staffed by people living away from their families and all sorts of problems can crop up for them. We don't often have any issues, but occasionally someone might take advantage or let you down. I'm always lecturing DH on keeping a professional distance, but then someone will come to him for help and all my advice goes out the window.

Glad it's not quite that bad, but it definitely is the "tricky" of your title!!

Rent and horse keep and £400 a week? Can I have a job?!