Guidance

Loans policy - combined HR and finance policy and process

Updated 28 February 2024

Introduction

This document details both the HR and financial implications to make decisions on loans easier for everyone. There are a number of HR and Finance considerations that departments, managers and employees should consider that apply in different circumstances.

Overarching principle

Loans of staff between government departments are an essential part of government operations. They are a good opportunity for employees to build skill sets and support high priority business outcomes and therefore have benefits for individuals and HM Government.

General principle for finance

Departments, managers and employees need to consider the financial implication of loans to other departments before going ahead with an employee loan. Departments must avoid recharging for payroll costs as this attracts VAT at 20 percent and recharging has a significant administration overhead for all departments concerned.

General principles for HR

A loan should only be agreed for a period of up to two years unless there is an exceptional business justification which is agreed by departmental management teams.

Loan opportunities should only be considered for employees who:

• have been recruited in line with the Civil Service Commission’s Recruitment Principles (appointment on merit through fair and open competition).
• have successfully completed their probationary period.
• have demonstrated acceptable performance and attendance levels.
• do not have any immigration visa restriction which specifies a particular place of work.

Loans should always have a written agreement which is agreed by all parties before the loan commences. Any changes to the loan such as a promotion or an extension require a new agreement to be put in place.

Loans under six months

Employees will remain on their home department’s payroll and associated costs incurred should not be reimbursed from the host by invoice. This avoids any negative impacts on the employee such as tax implications or disruption in pay. It also reduces the administrative burden of creating and paying numerous invoices across government which attract VAT charged at the 20 percent rate.

For loans under six months, employees will:

• remain on payroll of the home department for the period of the loan,
• be covered by the home department’s pay award
• be entitled to in year rewards of the home department
• be managed in accordance with the home performance management framework
• be counted as part of the home department’s headcount
• will be subject to the terms and conditions and other policies of the home department during the period of the loan
• be entitled to expenses in line with the home departments policies unless by exception the host department agrees to reimburse the employee directly for expenses incurred

Employees may not necessarily continue to be entitled to non-contractual or role based allowances they are in receipt of, in the home department when they transfer to a new department on loan.

Any temporary promotion under six months should be agreed with the home department prior to being offered to the employee to ensure that the home department can cover the costs within their payroll. Where an individual goes on loan on a temporary promotion, the home department’s pay and reward policies will apply.

Any over-time must be agreed with the home department prior to being offered to the employee to ensure that the home department can cover the costs within their payroll.

Where a loan is extended beyond six months, under normal circumstances, the employee should be transferred to the host payroll, in good time and from the first of the month, and for the remainder of the loan period.

Exceptions

Where the home department’s finance team decides that the costs are material and both the home and host departments mutually agree, costs may be invoiced. This will need to be evidenced in writing by both departments. If invoicing does take place there should be a single invoice for the period of the loan to avoid excessive administrative effort.

Loans over six months

Departments should follow the process outlined in the central Guidance for civil servants how to move jobs between departments and agencies. Following the CS Employee Transfer process completely negates any need to recharge for pay costs.

Payroll must be transferred to the new department to be effective from day one of the loan. This should be set to the 1st of the month, with sufficient time for HR/Payroll teams on both the exporting and importing departments to process the employee transfer. This will avoid the risk of payment errors and tax implications for the individual. No recharges can be made for part months or delays in processing.

For loans over six months, employees will:

• move on to the payroll of the host department for the period of the loan
• be covered by the host’s pay award
• be entitled to in year rewards of the host department
• be managed in accordance with the host’s performance management framework
• be counted as part of the host department’s headcount
• will be subject to the terms and conditions and other policies of the host department during the period of the loan
• be entitled to expenses in line with the host departments policies

Employees may not necessarily continue to be entitled to non-contractual or role based allowances they are in receipt of, in the home department when they transfer to a new department on loan. Where an individual goes on loan on a temporary promotion, the host department’s pay and reward policies will apply.

If an employee accepts an offer of any permanent role with the host department the loan arrangement is terminated and employee transfers on a permanent basis.

On return, employees will be mapped to the home department equivalent pay scale and where applicable, pay award.

Where the loan is extended, this needs to be agreed with the home department and a revised loan agreement put in place. Even where this extension is for less than 6 months, the employee would remain on the host departments’s payroll and the above conditions would continue to apply.

Emergency loan deployments over six months

Normal rules for loans over six months will apply subject to the following exceptions:

• where it is not possible to set the transfer date for the first of the month, for example, an exceptionally urgent and business critical need, including at ministerial request or an emergency situation. Departments need to mutually agree to such arrangements, as the exporting home department will need to cover pay for the pay period(s) until the transfer can be processed
• where loans are over six months, departments are not permitted to recharge for part and/or full pay periods while the employee transfer is processed
• if a department is materially affected by a high volume of loans where they have covered pay by not adhering to the CS Employee Transfer Process, departments would need to account for this as part of their own departmental budget and as part of the Estimates process with HMT colleagues. Finance teams within departments can advise on the specific process and timelines to account for this within your department under HMT’s Consolidated Budgeting Guidance

Emergency loan deployments under six months

Where there is a critical role which needs to be filled at pace to meet a priority or emergency resourcing need normal rules for loans under six months will apply subject to the following exceptions:

• a signed written agreement may not be in place prior to the employee starting in post. This should be carried out retrospectively, within two weeks of the employee starting in post
• expenses incurred by the employee during their loan should be submitted by the employee to their home manager for authorisation. Where expenses are expected to be higher than £200, the employee will need to ask for approval in advance from both home and host managers
• temporary promotion is not applicable for employees on six month priority and emergency loan deployments

These appointments are on grade level transfer only.

At the end of a loan the host manager and home manager should take all practical steps to facilitate an effective return. Employees will return to the terms and conditions, including pay and pension arrangements, of the home department.

The home or host department can terminate the loan earlier than the pre-agreed end date by giving the agreed notice period. Loans may need to end earlier if the employee accepts a new permanent job, where the employee has gained a promotion, for reasons of urgent business need or change, or if the loan is not working successfully and discussion has not resolved this.