How to Pay Employees When You Can't Make Payroll: Avoid Staggering the Payroll
Though you may be tempted to pay employees a fraction of their paychecks in lieu of nothing at all, staggering payments is a tricky process and, in general, is unadvisable. "Payroll is a state by state issue, and it usually is not legal to do that," warns Todrin. "Once you start owing your employees payroll, the employee is unsatisfied, will not put in his whole effort typically, and you're sowing the seeds for further erosion."
There is a way to broach the process effectively. Todrin recommends asking the highest paid, top-level staff members of your company to electively forgo their paychecks for a few days so that lower level employees can receive on-time payments. "If you're using the top two or three employees including yourself to not be paid at all, and you're spreading the rest out to everyone else, this is the type of spirit that gains confidence and a following," explains Todrin.
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How to Pay Employees When You Can't Make Payroll: Pay Tipped Employees What They're Owed
Sinclair estimates that the restaurant industry, or the tipped employee industry, experiences this scenario more frequently that any other. This is because, while employees may not be receiving their usual paychecks, they still receive daily payments in the form of cash tips. "If you're asking your employees to be delayed a week or you're asking your employees to not deposit your checks today but to deposit them in phases over the next ten days, many employees will buy into it, especially tipped employees who the check is just a percentage of their total income," says Sinclair.
Not paying employees their earned paycheck will not only land the operator of the business in hot water with the IRS, it can result in action being taken by the Department of Labor as well. The U.S. Department of Labor mandates that an employer must pay covered non-exempt employees the full minimum wage, along with any accrued statutory overtime for a given workweek. Failure to do so is a direct violation of the Fair Labor Standards Act and will result in severe monetary penalties.
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How to Pay Employees When You Can't Make Payroll: Restructure Your Business
Once the dust has settled and you've found a way to not only pay your employees but to remain in business, your main priority should be to restructure your operations in order to reduce the risk of this happening again. The best way to do this is to lower your overhead expenses. "A lot of times I think businesses wait too long to really see what they can dig and cut from," says Turner.
If you manage to survive this downturn both personally and professionally, Sinclair stresses that making a change means heavily altering your business model and curbing expenses. It also means showing the staff that you're in the gutter along with them, bearing the financial burden and helping to get the business back on track. "This is not a matter of us sipping champagne while you're cleaning the toilets. We are working hand in hand, rolling up our sleeves with you to resolve this," says Sinclair. He also warns business owners that, while a clear message needs to be sent to employees that the owners are shouldering the burdens right along with them, this does not give employees the right to slack off. "It's a very tight line to walk and one has to be conscious of that," he says.
It is the nightmare of employers to be unable to afford their most valuable assets, their employees. However, employers should remain empathetic to the situations of their employees. Before resulting to layoffs or shutting the business down completely, Seelinger suggests attempting the negotiation of a furlough or a reduction in hours for employees.
While you look for a way to pay your employees the remainder of what they're owed, Todrin recommends giving them whatever you can scrape up - maybe $50 per employee for gas money - as a gesture of good faith. It may be a catastrophe on your end as the proprietor of the business, but it can be a nightmare for employees who rely on their paychecks for their livelihood and sustenance. Be loathe to neglect the fact that your loyal employees are also due to have their hard work and humility reciprocated, even in hard times.
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