Yes it can. Employers are getting into the payday loan business, to mixed reviews. Generally, an outside financial company will contract with an employer and provide a loan to an employee. The employee then sees payments of the loan deducted from his or her paycheck, until the loan is repaid. The U.S. Department of Labor is of the opinion that loans from the employer may be repaid according to a loan agreement even if it means that the employee will end up with less than minimum wage for the week. These loans tend to be for small amounts, payable soon after the loan is made, and involve high interest rates. Read more here.
These loans have pros and cons. On the positive side, they may decrease financial stress on an employee, making him or her more productive. They can help build a positive relationship between employers and employees who see this service as assistance when they are in need. They may help employees avoid even more predatory and ill-advised payday loans. On the negative side, as one tax attorney stated, “Is it fair for an employer to get the services of the worker, and the lender to take his money? At what point is this unconscionable.” (See above article from Business Week.) Some also fear a return of the “Company Store”- a practice popular at the turn of the 20th century by which employers required employees to shop at stores owned by the company, effectively keeping employees in debt as indentured servants. Click here to read a recently published article on this topic.