Timely Inform Employees
Most entrepreneurs who are struggling are well aware of whether they will be able to make payroll. It is due to this feeling of embarrassment, that they won’t inform their employees that they are not able to pay them. Experts recommend though that, as soon as an employer comes to know that they cannot pay their employees, inform the employees at once. Don’t handle the situation emotionally; be honest and realistic. Once you have decided to inform employees, start with upper management, working your way down to the newest employees. The top-down approach is adopted because the severity of the situation lessens when the news of no payments circulates from upper management to the lowest level.
Search Resources for Finances
An employer is liable to state and federal taxes if they are unable to pay employees. As soon as you come to know that you cannot make payroll, take decisive action. Think of all the sources from where you can get the funds. These resources may include carrying out layoffs, swift solutions of the business modification for rapid liquidity, or closing entirely. If all these plans fail, the owner is liable to penalties and fines. These fines are equal to fifty percent of the annual earnings.
Utilization of the Available Resources
Another method to pay employees without making payroll is to utilize all of the available resources. These available resources are the inventory and pending receivables your business has. These are the immediate sources of funds. Liquidate the inventory or ask vendors to pay receivables immediately at a discount. You will be able to earn capital immediately and can pay employees.
Avoid Confounding the Payroll
Some employers tend to a fraction instead of nothing at all. This method of staggering payments may not be applicable and practical in all states due to legal issues. Once you cannot pay employees, their efficiency decreases, and they are likely to flee as soon as they get new employment.
The other method recommended is reserving some of your most trusted employees the promise that you will pay them as soon as possible. Ask them if you can hold their paychecks for a few days in order to pay other employees timely. If they agree, you will be able to make on-time payments.
Pay for Labor Immediately
The U.S. Department of Labor states that all daily wage employees should be paid the full wage along with their overtime. Otherwise, the penalties and fines will be imposed according to the Fair Labor Standards Act.
If you are unable to make payroll, manage to pay labor, and daily waged workforce to avoid lawsuits.
Streamline Your Business
Once you are able to come out of the crisis and have paid your employees, restructure your business. Necessary modifications are needed immediately to avoid this happening again. Make changes in the business model. Decrease your overhead expenses and restructure your operations.
Employees are the asset of your business, and you are cashing in on their hard work and honesty. Paychecks are the only source of livelihood and income for them. So, even in a time of crisis, you should be able to manage to pay off their checks so that they can survive. But, in return, they should be empathetic with you. This message should be conveyed to all of your employees.
Conclusion
Not being able to pay your employees is a dire situation for a business owner. Still, options like selling assets, borrowing money, or delaying some payments may allow you to pay them, even in the worst of situations.
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