Hardships Happen
Sometimes, bad things happen. We fall on hard times, and our typical methods for doing things don’t work like they would under normal circumstances.
When you’re a business owner, such situations often come at both your and your employees’ financial expense.
If you find yourself struggling to pay employees due to an unforeseen hardship like a pandemic, it can be frightening; much more is at stake than just your employees’ feelings.
Time is of the essence, but avoid rash actions. Instead, try the following steps.
Be Honest
The first step is to be honest about your situation. When you start to see signs that you may not be able to pay your workers on time (or at all), tell them. You likely don’t know the financial status of each employee, and some may need more time to prepare for a pay cut than others.
Communicate the facts. Keep morale as high as you can by being transparent and demonstrating that 1) you are aware of the situation, and 2) you are working toward a solution.
While it’s difficult for anyone to receive this news, your employees will generally appreciate your up-front honesty.
Evaluate Your Finances
The next step is to thoroughly evaluate your finances. Look at your current cash flow: how much money are you bringing in? How much are you spending? How much do you owe? Are there areas that you can manage more efficiently so you can better allocate your funds?
Have you asked your creditors for new terms or a grace period, due to the hardship?
Essentially, with each of these questions, you are answering a larger, more important one: “Where is my money going, and should it continue to go there?”
You should be able to track where every dollar goes in your business, whether it is coming into your pocket or leaving it. Look at this information through the lens of prioritizing your employees’ compensation.
Determine the trends of your cash flow so that you can find out if it is possible to redistribute your money more effectively, such as to your employees.
Use What You Have
In the previous step, you may learn that you have funding sources already available to you. Consider everything that may be at your disposal: supplies, equipment, assets, savings accounts, assistance from family/friends, etc. Any of these sources might provide additional funding that you could apply toward your payroll.
You may uncover cash avenues that you wouldn’t have considered otherwise.
Ideally, you want to to make use of resources already on hand—even if it requires a little extra work, like selling unnecessary items—before having to borrow from an outside source.
Find Back-Up Funding
What you have on hand still may not be quite enough. In this case, you will need to look elsewhere for funding. Loans are common options.
An SBA Loan is a loan guaranteed by the U.S. Small Business Association expressly to assist small business owners in their finances. For COVID-19, small businesses in Arkansas are eligible for Economic Injury Disaster Loans from SBA.
However, there is a small catch: time.
The newly passed Coronavirus Aid, Relief, and Economic Security (CARES) Act (summary) allocates money to help small businesses keep workers employed amid the COVID-19 pandemic. Details about how the CARES Act’s Payment Protection Program initiative will work are still being finalized.
A Coronavirus Emergency Loans Small Business Guide and Checklist prepared by the U.S. Chamber of Commerce states “The initiative provides 100% federally guaranteed loans to small businesses who maintain their payroll during this emergency. Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward. The administration soon will release more details including the list of lenders offering loans under the program.”
Pay What’s Owed
Ultimately, no matter what has placed you in a situation of financial hardship, you must find a way to pay your employees.
This is not only for their sake; employers face severe legal repercussions for failing to pay, as doing so directly violates the Fair Labor Standards Act (FLSA).
In the article 4 Steps to Immediately Follow If You Can’t Make Payroll, Kaylee DeWitt writes, “When you violate the FLSA, you might have to pay back wages, back taxes, criminal penalties, damages, attorney’s fees, and court costs” and you could face imprisonment, which, as DeWitt notes, will all cost you much more than your employees’ pay.
Support Your Employees
Sometimes, despite your best efforts, you may still find yourself with no foreseeable way to continue paying your employees. You may be faced with a layoff, or worse, temporary (or long-term) closure of your business.
This is an unfortunate reality for many small businesses, especially during times of crisis, or even startup.
Even if you have to let employees go, you can offer them options so that they can stay on their feet.
One option is unemployment insurance benefits. Particularly during times of widespread hardship, many employees will be considered eligible for these benefits. Should unemployment be granted, the employees will have time to look for work outside your business while still being financially supported.
The Takeaway
No matter the circumstance, try to do everything you can to avoid delaying your employees’ compensation. You don’t want your employees to suffer, and you don’t want to put yourself at risk for severe legal penalties.
However, if you do find yourself struggling to pay your workers on time, don’t panic. Take a deep breath, and use the steps above to make wise decisions to help stabilize the situation.