How to set up an account for a loan to an employee?

You just need to create a New account in the Chart of Accounts.  The new account Type will be either an Other Current Asset Acct, if they're going to pay back in more than a year, or Other Asset if the loan will be paid back within the year.  And this is within your fiscal year (tax year), not 12 months from the time you give them the money.  You can name it some thing simple like "Loan - J Smith" (or something similar).

When you write the check to the employee, you'll use this new Asset Acct.  Then when the employee makes payments, you'll apply it to the same Acct and it will begin to lower the balance.

If you're charging Interest, then create another Income Acct called something like "Loan Interest Income" (or similar).  If the employee is making one payment for the Principal and Interest, you'll do a Split Entry and break out the correct amount between the two Accounts.

J Smith Payment         $110

Loan - J Smith             $100

Loan Interest Income    $10

NOTE: If you take out a loan, it's similar to the above.  But the Principal would be in a Liability Acct and the interest would go towards an Expense Acct (e.g. Loan Interest Expense).