Cannot make payroll? What to do.

This happens. Payroll comes every week, or every other week,  relentlessly, quickly, and frequently. Along with it comes tax deductions and contributions, another ‘must be paid’ item. Frequently medical insurance may also be included and sometimes other deductions and contributions be it 401k’s or whatever it may be.

Missing payroll is a horrible experience.

So many business owners fight all week to make payroll on Friday and sometimes must ask the employees to wait until Monday to cash or deposit or even wait another week…it happens far more frequently then one would guess. No one likes it.

Now that our economy is melting down, and revenues are being rapidly reduced, receivables being stretched out and costs increasing, many business owners who have never confronted this issue before will now be forced to deal with this most difficult matter, not making payroll.

So what do you do, how to best handle this situation? Here are some thoughts.

If done appropriately you will not experience a mass walk out, as many fear or believe will occur. Most employees will understand and will work with you, if the matter is handled properly.

1. Communicate, as soon as possible. Reduce the stress, the wonder, the waiting, the question, from the employees minds, as most certainly they will know before you tell them and they will be waiting and watching to see what you do and how you handle it. Earlier notice allows their pain and anger to subside a bit and they can prepare as best as they can.

This will also reduce the pain and frustration you are experiencing and reduce the matter to a workable situation with information and communication, a plan that outlines the solution, the response, as soon as possible.

2. Do it yourself. DO NOT allocate this responsibility to a manager or staffer. The owner should stand before his employees and tell them the situation. You must accept the responsibility for the failure, its your problem, your job.

Tell them why the payroll is late, tell them when it will be good. Explain to them that you are also not taking any cash out. Tell them you are doing everything you possibly can to alter this situation. Tell them what they can expect in the future even if it is not good. Tell them that you understand the difficulty this causes for them and their families and that you are most sympathetic.

If possible take whatever cash may be available and divide it out, $50.00 $100.00.per person, all getting the same amount, gas money to get home…whatever, and do not credit their pay checks when it is time to distribute them.

Ask your people to work with you and help overcome the issues and tell them how much you appreciate their sacrifice.

If you do this a few things will occur:

1. Most will cooperate and the few that you loose will probably be best for the company as they are  identifying themselves as expendable, non team players. In fact it will reduce the next payroll without having to fire one more person.

2. If you tell the truth, and keep them informed, demonstrating respect and concern, as well as sharing the appropriate information for them to understand your predicament, in the end your employees will be more loyal, more empowered and more satisfied with their job.

3. They will accept any immediate changes that are required including downsizing, removing perks, lowering pay, foregoing bonuses.

4. If you make the appropriate moves that are visible, immediate and have impact on your bottom line, your employees will be more accepting. cooperative and supportive, even firing their friends and co-workers will demonstrate your commitment.

Most of your employees will stay and work hard, side by side to help turn the business around.

If it happens again, your employees will be better able to deal with it. As long as progress is being made and change is clear, and you tell them the truth as soon as possible, your employees will remain loyal and will work for a promise.

Make certain you keep your word, make no promises that you cannot keep, if you do reak your word or promise, you will soon see massive abandonment, as well you should, whats the point, trust will be gone.

Do this and you will survive missing a payroll or more. Its not fun but it does not have to be fatal.