When Money is Tight

“I am expecting money from my receivables and an investor. However, right now I'm strapped for cash for payroll. What are my options?”

Your?HR Survival Tip

Whenever money is tight, you need to understand your legal obligations and work to satisfy those before going further. Payroll is one of those obligations.

There are a few ways you can reduce your current payroll cost, which is often one of your largest operating costs. However, you cannot legally withhold or delay paychecks. An employee must have their paycheck within 7 or 10 calendar days after the period worked. The difference between 7 versus 10 is based on which payroll cycle you have (i.e., semi-monthly, weekly, etc.). No matter what your employees might say or agree to; you must pay on time.

You also can't move the pay date. Even if the new date is within the required time frame, another rule is that you need to keep to the promised schedule. If you've said the pay date is the 5th and the 20th, then you must stick with that.

Consider just being honest with employees that the company is going through financial issues and you need to make some immediate changes. Options you could implement are below. When considering these options, either have the choice affect everyone or choose the individuals carefully so the chosen few won't be viewed as discriminatory.

• Cut back on schedules -- Reduce employees' working hours temporarily.
• Cut back on wages -- Reduce the amount each employee is paid temporarily. For example, a 10-50% pay cut until you have sufficient funds for payroll. If and when you receive the expected monies, you can opt to catch them up. However, you could keep the pay cut but you need to recognize employees may leave rather than continue to work at reduced wages.
• Reduce your headcount -- A layoff is appropriate if you plan to hire the individuals back. Otherwise, consider a more permanent reduction in force (RIF)... this is better known as downsizing.

The bottom line is, if employees are putting in hours, they must be paid in full and on time. You can't play with that. The only thing you can do is reduce your payroll to a level that is affordable right now. Don't wait until you're facing a payroll with no money. Not only is that bad for morale, but you could end up with fines and penalties that could worsen your financial situation.