Can’t Pay Employees Anymore

Can’t pay employees anymore. Written by John A Waller, Consultant. Reviewed: July 2nd, 2024.

If you Can’t pay employees anymore because of Coronavirus COVID-19 PANDEMIC?

The COVID-19 pandemic has significantly impacted people’s lives and businesses throughout the UK.

It’s stressful when you don’t have the money to pay my staff, affecting both of us.

Employees usually rely on the company for income, and your company depends on them to operate.

Employee Guide to Insolvency.

Paying Your Employees

Deciding how much to pay employees and how to pay salaries is one of the first things a business owner does when they start a business. However, getting the right balance remains essential, affecting employee performance and loyalty. So when a company has financial difficulties, paying your staff puts significant pressure on the owner. If you want to save money, it’s essential to get rid of redundant stuff, handle the redundancy payments correctly, and ensure you don’t go out of business.

For further assistance, contact John Waller on 0330 056 3120.

Take a step back, and do not panic when you can’t pay your employees anymore.

One of the first steps is understanding why you cannot pay your employees this month. 

  • Has demand for your product or service dropped, causing your turnover to decline accordingly? 
  • Have you suffered unexpected expenditures that have hit your cash reserves? 
  • Is it because a client (or clients) has failed to pay you on time, which has had a knock-on effect on your cash flow? 

Unfortunately, late payment is part of business in many industries. While this can be frustrating, it can also be fatal for a small company that needs more cash flow to weather the storm until its customers pay.

Can’ Pay Staff Wages Anymore.

  • Insufficient cash flow.
  • May the problem be short-term?

Notwithstanding, it may, however, be a more significant issue.

Like:

  • Sales decline;
  • A bad debt;
  • Loss of a contract;
  • Or slow-paying debtors.

I can’t pay my employees?

Can’t afford to pay employees? – So, What Options Do I Have?

As a director, you must ensure you are not trading insolvent. If your inability to pay employees is a short-term issue, and you can identify why and correct the cash flow, that is excellent. Once you are assured, the business is a going concern. Then, consult HBG Advisory for assurances moving forward. 0330 056 3120

If your company has potential issues they can’t resolve and drift into insolvency. You may, therefore, need to cease trading to avoid trading while insolvent.

At this point, you need to seek protection. Consult a Licensed Insolvency Practitioner at HBG Advisory. (The Team at HBG Advisory). We will deal with creditor claims and employment issues, including employee redundancy pay.

How do you tell staff your staff you can’t pay wages?

If you consider the problem is short term only, then:

  • Speak with the employees earlier than later, asking for extra time to pay. It would be best to be assured of your company’s viability.
  • Discuss an achievable time scale to pay them;
  • Investigate honestly why your business remains unable to pay them;
  • Plan how you can cut costs without making the situation worse.

For further information, please view ‘What happens to my employees in a liquidation‘?

Considering Insolvency. Business formally Insolvent

If your business is not viable and insolvent, the company directors must protect the business’s creditors, ensuring the position doesn’t worsen for creditors.

Therefore, failing to pay employees means they are a creditor of the business.

It is vital to understand the implications of the liquidation of a limited company.

Directors should immediately get advice from a licensed insolvency practitioner, following the rules. Further, you need to plan the best outcome for your business employees.

We at HBG Advisory will guide you through the available options for your business.

When employees are furloughed.

When you have placed your employees on furlough, you may not ask them to perform any work that:

  • Earns money for your business or in any way associated with your business.
  • Provides services for your business or any associated business.

Apply For A Loan

As with the above, you need assurance of your company’s viability. Ensure that any short-term gain from a loan does not add to long-term debt that the company may fail to pay in the long run.

How Viable Is Your Business Plan?

If your business plan demonstrates robust growth with profit, a company may continue trading while paying its creditors.

Invoice Financing

Invoice factoring applies to B2B-type businesses. A business may raise commercial finance for the delivered value of its singular or batched invoices. This helps companies grow faster than cash flow.

Take care when considering this option. If sales are declining, you may also add to your operating costs.

Many commercial finance options exist with varying interest rates.

If your business model is viable, bank loans may often be the cheapest option.

What Else! If All Else Fails?

  • Company Voluntary Arrangement (CVA) Explained
    • A CVA is an arrangement that allows a business to maintain trading while also allowing the business to reimburse employees. It will enable the company to agree with its unsecured creditors and reduce the debt owed pro-rata. It can allow companies to continue trading while repaying creditor debt. This could solve cash flow problems and enable a company to pay its staff.
  • Company Administration
    • The administration of a company may only happen if it achieves a statutory objective. Directors must not abuse an administration to protect the company, without ensuring the creditors’ position improves.
    • Going into Administration?
  • The business is not as viable as it was.
  • Creditors Voluntary Liquidation
    • If the business is failing and cannot pay, other payments are usually unpaid. There could be a much more significant problem. So liquidation may be best. Once the liquidation commences, the liquidator will ensure creditors are paid from any realisations of assets, though payment in full is not assured and is in order of preference. Employees of the liquidated company can claim unpaid wages/salaries, redundancy pay, holiday pay, and payment in lieu of a notice funded by the Government. 

What can you do if your employer can’t pay you?

Suppose your employer has not paid your wages for work you have carried out. Under UK law, any unauthorised deduction from wages entitles you to proceed with a claim using an employment tribunal.

It is considered a breach of your employment contract to withhold money without your authority as per your employment contract.

You need to understand your employee rights when a company is insolvent.

Changes effected in May 2014 to employment tribunal mean you must complete an ACAS Early Conciliation Notification Form before bringing any tribunal claim.

How HBG Advisory may help

We can offer many options, including assistance with invoice financing, providing the business is still viable?. Equally, there may be ways to rescue or restructure the company. 

So, if the business requires closure, the HBG team provides robust commercial support to close it cost-effectively and legally.

The sooner company directors seek help, the more options exist.

Handling creditor pressure

Handling business debt can be unpleasant for both the debtor and the creditor. Creditors’ pressure can spiral out of hand. If a business faces unflagging creditor pressure, understanding how to deal with it eases the situation for both sides. 

Creditor harassment differs from rational action, so it’s essential to know when creditors are too forceful.

If you are confident your business has a future, but no ability to pay employees, HBG Advisory can advise on your next move.

Contact: John Waller on 0330 056 3120

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