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What If You Can't Afford Your Employees Salary Anymore?

admin November 28, 2015

It is an employer’s worst nightmare: You can’t pay the employees who rely on you to meet their own financial obligations. When you find yourself in this position, you need to take immediate action. Below suggest really helpful ways that you can rely on.

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It is an employer’s worst nightmare: You can’t pay the employees who rely on you to meet their own financial obligations. Often, that is a sign of your business in trouble, but sometimes it is owing to overdue accounts receivables, a seasonal decline in business or a large inventory purchase. But whatever the cause, you need take immediate action if you find yourself in this position.

What happen if you don’t pay your employees?

The relationship between employer and employee isn’t special. It’s very simple; it is based on money. The employee works for the employer; in return, the employer pays the employees. They are even.

From the management perspective, it’s true that you should consider the human element of your staff very carefully; this is included in the behavioral approach to management. Rather, workers that receive attention from their supervisors are, generally, more productive (the Hawthorne effect). Still, this potential gain in productivity is debatable if your employees aren’t getting paid. Here is what may happen if you aren’t paying your employees:

• Your employees will turn up at work late with increasing frequency

• Some days, they may not come in at all

• They will take longer lunches

• They will leave early

• They do show up, but they slack off

•  They will stage a strike

You may also like reading:

5 Killer Tips to Avoiding Labor Disputes

What to do if you can’t afford your employees salary?

1. Raise money fast



Additionally to having the legal problems, if your workers aren’t paid, as mentioned above, they might become disgruntled or use it as an excuse to become lazy and not complete their work. To keep your business seamlessly flowing, you should do your utmost to pay your employees. Below are some ways to create some cash flow quickly.

• Collect what you are owed

Try to collect all accounts which are past due. Call all the with the past-due balance to ask them to pay it. If you don’t succeed with this, give a discount to those who will pay immediately. In case of emergency, you can ask them to give you the money.

• Collect what you are not owed

If you have account receivables from your loyal clients that always pay their invoices on time, contact them and give them a discount if they will pay you early.

• Sell your account receivables

For the clients that can’t or won’t pay, just sell their invoices to a factoring agency. You will only receive a percentage of the amount owed, relating to how past due the invoices are, but it’ll quickly put cash in your hands.

• Turn lines of credit into cash

If you have a credit line with your bank or on your business credit card, it’s high time to use it.

• Borrow from family and friends

You may not have enough time to file for a traditional bank loan or the like, but asking for a loan from family and friends is a quick way to get some cash. To avert problems in the future, make sure to treat it as you would have a formal loan. Make a contract outlining the terms that you agree on.

• Consider the alternative funding options

There are many types of loans quicker and easier to get than bank loans (merchant cash advance, etc.)

• Liquidate your surplus inventory

With surplus inventory, you can liquidate it fast and get cash infusion by contacting a liquidation company – for example.

• Contact your suppliers

You can buy from the same supplier on a regular basis, and have developed a good working relationship with them. Contact them to ask for a short-term extension on your payment terms, and use the money you would have paid them to pay your workers.

If all of them fail though you do all you can, you can avail below ways. Note that instead of waiting until the last minute, communicate with your workers about the situation and let them know you are trying to work it out. Indeed, many companies close their doors and leave workers hanging in the lurch without knowing about whether they will receive their last pay check. If you aren’t able to pay them or need to delay it by some days, the best policy is being honest and sharing this knowledge with your workers. Give everyone an opportunity to ask questions in the presence of their line managers. Bearing the bad news isn’t easy and it will create anxiety and cause some workers to jump ship. But keeping the problem secret just delays the inevitable.

2. Take a pay cut to avoid layoffs


As the employer, forgo your own salary and put that money towards paying your workers. This won’t just give you some cash to work with but will show your goodwill that will expectedly encourage your employees to rally around you and the company. If you have the high-ranking executives working for you, negotiate with them about receiving their salary some days late so that you won’t have to miss paying your lower-level staff.

You can cut your employee pays provided that you return it when the company survives the hurdles, or do such kind of things. Pay cut has been a standard practice for companies experiencing unexpected financial pressure. While pay cut may mitigate your financial concerns in the short run, extended pay cuts can affect your employee morale and loyalty. Also, whilst the company-wide pay cuts may prevent layoffs, there is an obvious risk that top performers will be encouraged to leave for rivals that give superior compensation. That’s why salary freezes or cuts should be as a last resort and for a limited period only.

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3. Cut hours


If you do all you can and there is still no way to make payroll, you might need cut back employee hours. This won’t relieve you of paying employees for the hours they worked, but this may help with cash flow until the recovery of your business. As for employees, they can take this chance to do things they want to do but have no extra time for doing it.

4 steps to achieve better work-life balance

4. Use mandatory vacation



Implementing mandatory vacation involves asking your employees to use their accrued vacation days or mandating them to take a number of unpaid vacation days during a given time period. Whilst workers may not want to be told when and how to use their entitlements, they will, however, appreciate the reaffirmed job security.

5. Make temporary facility shutdown


Temporary facility shutdowns happen when a work site closes for a certain period of time, whilst some administrative functions are still working. While your overall company production decreases, the company can get considerable cost savings and avoiding layoffs.

6. Solicit ideas from employees


Workers appreciate the opportunity to make a positive impact on their working place and environment. You can solicit ideas from them when it comes to a solution to that your company can’t pay their salary.

You may also want to have a look at:

Exactly How to Get Honest Feedback from Your Employees

7. Recognize sacrifices


When the cash registers are dry, you should try to recognize the efforts of employees who continue to keep the company going. What workers won’t forget is how managers treated them in tough times. That means you should increase the amount of time spent with employees, writing appreciation notes, effectively listening to their concerns and thanking them over and over again for saving the day.

8. Avail short-term compensation programs

Another option is to lay off a portion of your workforce. Affected workers will receive unemployment insurance benefits on a prorated basis commensurate with the extent of their partial layoff.

9. Offer voluntary exit incentives

A common method of reducing payroll costs is to give voluntary exit incentives – for example, special early-retirement benefits. Senior employees are often the most highly paid, so trimming their ranks can lead to considerable savings. Still, senior employees are often the most valued of yours, and losing too many of them can weaken the leadership of your company.

10. Give the task to current workers

Instead of hiring an outside agency for tasks you normally outsource, give the task to your current workers. It will save you a buck and keep them busy. Let your employees know that jobs need doing and find out if there is anyone with a particular skill that matches. Some workers will not agree on the idea of shouldering new responsibilities, but as long as they know it is just temporary and it doesn’t go against the signed contract, they will usually pitch in – they may even like such a change of pace as it makes their work less boring and repeating.

11. Lay someone off and keep others’ salaries intact



Whom to lay off can be higher salaried employees, newly hired employees, the lower 10% on work performance scale, employee nearing their retirement, older employees. Ask for legal advice before you terminate the employees. During the termination process, remember to be honest (Clarify the employee why he or she is being laid off), be compassionate (show the terminated employee your compassion and understanding. Also, negotiate with your employees about severance package (continuation of insurance benefits, assistance finding another job)) and be quick.

See also:

What kinds of employees could be fired easily?

How to Fire Employees Peacefully

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