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Can’t Pay Employees – What Should I Do?

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If you can’t pay your employees’ wages when they are due, your business’s cash flow could be in danger of going bankrupt.

Every business owner needs a strong workforce, so your company’s top priority is ensuring their wages are paid on time and in full.

A Company’s cash flow problems can prevent a director from paying employees unpaid wages and holiday pay.

If you are unable to pay wages in February 2024 this guide, will give you the information you need.

What are your choices if you cannot pay your employees’ salaries?

Failure to pay your employees on payday could be disastrous for your company. Without a team, operations might stop quickly.

A lack of staff would prevent you from taking on any new orders and make it hard to finish the ones you already have.

For your business to stay afloat, you need to trust your employees to do what they need to do. They must be able to depend on you to be a decent employer, which includes carrying out your obligation to pay their salaries in full and on time before you can rely on them.

Paying your employees should always be a top priority payment, but if you discover this won’t be possible, follow the steps further down the page.

Taken Out a Bounce Back Loan?

If you have taken out a business loan and cannot afford to pay this back, you are not alone.

Thousands of other corporate directors are going through the same process, so don’t be alarmed.

Whatever situation you find yourself in, talk to a Cannot Pay team member if you need to explore your options.

We offer private and confidential advice on company debt, employee payroll, outstanding liabilities and the formal insolvency process.

If you can’t pay staff wages this week

You should prioritise informing your employees as soon as you know that you won’t be able to pay their salaries in full.

They won’t be any less sad or outraged about the news, but at least they won’t get a nasty surprise on payday, and you’ll give them time to make other arrangements. If you receive a hostile response, don’t be surprised.

Even though your company may be worried about its finances, your employees are probably much more concerned about their own. They may worry about how they will pay their bills if they don’t get paid monthly.

If you can offer them a timeframe for when you will be able to pay them the money they are owed, it will help to lighten this tough talk.

If you can’t promise a specific payment date, you should let your employees know until their next paycheck comes.

Even if your staff thinks that not getting paid is a one-time thing, it should be clear that this can’t go on forever. If employees do not receive pay, they will eventually stop working.

If you continue running your business, the financial situation will only worsen as usual. If you don’t have the money on hand to keep your payroll running, this suggests that your company has serious financial problems that need to be handled right now.

Find The Cause

Finding the cause of why you can’t pay your personnel this month is the first step.

Is your business model viable?

Has the number of people who want your goods or services declined, causing your sales to go down?

Perhaps you experienced an unforeseen expense that reduced your monetary reserves.

Is it due to a client’s (or clients’) late payment, which thus negatively impacted your cash flow? This can be annoying, but it can be disastrous for a small business that doesn’t have enough money to get through a crisis until they get paid.

Unfortunately, late payments are a fact of life in many industries.

Finance for invoices

If customer late payments are the source of your current concerns, you might consider using invoice finance to stop this problem from happening again.

Invoice financing, which includes invoice factoring and discounting, can quickly get a certain amount of your unpaid invoices. This keeps your cash flow steady and gives you a good idea of when you’ll get paid for your services.

Although there is a fee involved with this financial arrangement, it is well worth considering if it enables you to pay your employees’ monthly salary on time and for business to continue without interruption.

Formal Bankruptcy

When your company is insolvent, it is your responsibility as a director to put the interests of its creditors ahead of your own and to make sure you don’t take any actions that would make their situation worse.

When you don’t pay your employees, they become company creditors and need to have their welfare adequately protected.

To ensure you’re doing your job as a limited company director and to get the best outcome for your employees, you should talk to a qualified insolvency practitioner as soon as possible.

An insolvency practitioner can walk you through the choices available to you and your business and how each will impact your employees. The debt solution will depend on how distressed your business is and how likely it is to become profitable in the future.

Administration and TUPE

Putting your business into administration might be a good idea if it’s having trouble right now, but it will help keep the employees and profitable parts of the company in the long run.

An insolvency practitioner will be chosen as part of the administration process to manage the company’s affairs. Any employee still working after the first 14 days of the administration will become a preferential creditor and be able to file a claim for back pay and unpaid vacation days.

The Transfer of Undertakings (Protection of Employment), or TUPE, rules say that if the company is sold through an administrative procedure, the employees’ current contracts will be transferred to the new company.

The new company will be in charge of paying back salaries that haven’t been paid and keeping the current terms and conditions of employment in place.

Company Voluntary Arrangement (CVA)

A CVA is a type of bankruptcy that allows a company with financial difficulties to restructure its debts with lenders, suppliers, and even HMRC.

It frequently happens that some debt may be totally written off, and the balance will then be paid in more manageable monthly instalments. With fewer liabilities, the company has a better chance of surviving.

When a company goes into a CVA, employees are often not affected because the business will keep running as usual. However, as part of the CVA, the company will look to make financial savings where possible by streamlining the business and its operations. Unfortunately, this process can inevitably lead to staff redundancies.

Liquidation

If your business can’t stay in business because of money problems, your insolvency practitioner may tell you to put your business into a Creditors’ Voluntary Liquidation (CVL).

A CVL brings about the end of an insolvent company and deals with its outstanding creditors. But what happens to your employees?

If you formally close down your business, it will no longer exist, and your employees will have to find new jobs. They will then have the right to claim redundancy and other statutory entitlements, including arrears of wages.

Need to speak to someone?

If your business is struggling with debts that are hard to handle, tight cash flow, or an uncertain future, you are not alone.

We speak to company directors like you every day and are here to give you the help and advice you need.

How can We help?

You must speak to an insolvency practitioner if you cannot pay your staff wages. Cannot Pay has more than 100 licensed insolvency practitioners working out of more than 100 offices all over the country. This means that expert help and advice is never far away.

Get in touch today for initial advice or to arrange a free no-obligation consultation.

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