I can't pay my employees- what should I do?

Many business owners are worrying that they can’t pay employees and are keen to find out what solutions there are to help.

Many businesses have been facing financial difficulties as a result of the coronavirus and energy.

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Cash flow difficulties have even left some companies unable to pay their staff’s wages.

Need business re-finance help or company closure advice?

If you struggling to pay your staff PAYE payroll wages we can assist with all solutions available.

Table of Content

1 Common reasons I cannot pay my Employees
2 What to Do If You Can’t Pay Your Staff?
3 Summary
4 Struggling With Other Debts

Common reasons I cannot pay my Employees

Cash flow difficulties are the most common reason a company can no longer afford to pay wages.

Cash flow troubles could be short-term, perhaps due to a seasonal downturn in which your profits drop for a couple of months.

Maybe there are more long-term problems, such as a steady decline in sales or a loss of a big client.

Are there deep-rooted issues with your business model that need to be addressed urgently?

Or, perhaps you have unreliable clients who often make their payments late, leaving you out of pocket repeatedly.

It is important to assess every aspect of your finances as soon as it becomes apparent that you might not be able to pay staff wages on time.

What to Do If You Can’t Pay Your Staff?

Knowing you can’t pay your employees is a concerning position to be in.

If you can’t afford to pay employees, you may feel guilty that your workers aren’t being compensated correctly for all their time and hard work.

Don’t worry, there are some solutions that you can consider, which may help you pay staff wages and holiday pay.

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You need to assess whether the issues with your finances are a temporary problem or whether you have serious issues which could force your company into closure.

If the company’s cash flow problems are only temporary

If you are sure that your inability to fund your staff wages is only short-term, then there are a couple of options you can try.

Ask staff to wait

Although it’s not an ideal solution, sometimes the only option is to ask your employees if they are happy to be paid late.

Honesty is the best policy, and you are more likely to receive a positive response from your staff if you are open about the company’s financial situation.

Your employees help make your company what it is, so they may understand and support your decisions – provided they receive their wages sooner rather than later.

Staff may be willing to have one or two late payments, but if you know this may be a reoccurring problem, then you need to find a better option.

Business cash advance – business loans

Another option your company can consider is taking out a business loan.

If your business debt restricts you from making payments to staff, you should consider seeking a business loan.

Before taking out any loan, seek initial advice from a free debt advisory service.

A business loan may not be a sensible decision if your company is already struggling with any repayments to outstanding creditors.

Adding more debts to your limited company can make matters much worse.

If you are aware that your company may need to enter formal insolvency in the near future, then you should refrain from taking out any other loans.

As a director, if you are aware of your company is insolvent but still choose to continue trading, you may be made personally liable for the company’s debts.

Choosing to trade whilst being insolvent is deemed as wrongful trading and there can be serious repercussions for outstanding liabilities.

If the company’s cash flow problems are long-term

Unfortunately, some cash flow difficulties are permanent and hard to improve.

In this situation, assessing the business’s finances is even more important to find a suitable option to help you page wage arrears.

Invoice factoring

You may struggle to pay salaries due to your clients’ continuous late payments.

If your client makes a late payment, your company won’t receive the funds on time, which would mean you don’t have funding in time for payroll.

Invoice factoring, or invoice financing, are a way of receiving cash upfront for unpaid invoices.

The main benefit of invoice factoring is that the invoice company provides you with a loan, and they also take on the responsibility of chasing the client for outstanding payments.

So, you no longer have to wait to receive payments from your customers, but the invoice company will act as a debt collector on your behalf.

If you want to learn more about the best invoice factoring companies, read our article!

Company Voluntary Arrangement (CVA)

If you know that your money problems are only temporary and that your company has a viable future, then you should consider entering into a company voluntary arrangement.

A CVA is a legal agreement that helps you make achievable monthly instalments to pay back your creditors.

This arrangement makes paying back debts more manageable as you make one payment to a licensed insolvency practitioner, rather than multiple, too many different creditors.

The licensed insolvency practitioners association regulates debt arrangements, such as CVAs, to ensure the insolvency practitioners act in their best interest.

The main benefit of a CVA is that it allows your company to pay off any outstanding bills, whilst continuing to operate your business.

As you continue trading, debts can be written off over time, and staff wages can be prioritised.

Find the top CVA companies by reading our list!

Administration order

An administration order is a court-ordered agreement, which prohibits creditors from chasing their payments.
This is a viable option for companies or individuals will debts below £5,000.

Under an administration process, you are protected from any legal action against your outstanding debts.

However, you are allowed to make monthly instalments toward your arrears.

The benefit of an administration order is that it allows you to make reasonable monthly repayments without the overhanging stress of law enforcement.

As your company can begin to make achievable repayments to repay their overdue bills, then eventually, cash flow can improve, meaning you are able to pay and meet payroll.

If the company is no longer viable

In the current market, it isn’t uncommon for a business model to be deemed no longer viable.

If you are struggling to pay staff wages or repay other company debts, you need to think, ‘is our business model viable?’.

It might come as a nasty shock, but the best route may be to close your business down.

Liquidation or insolvency is always a last resort, but if every other option has failed, and your trading style and current structure aren’t working, then it is for the best.

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Company Voluntary Liquidation (CVL)

The most efficient way to stop your business from trading while protecting your creditor’s returns is to enter a company voluntary liquidation agreement.

Within a CVA, your lender’s funding is prioritised, and your licensed insolvency practitioner will ensure all the money owed is returned to your creditors.

In an insolvency process, all employees are entitled to claim the following:

Claim unpaid holidays
Claim redundancy pay
Claim any outstanding wage arrears
Payment in lieu of notice period (restrictions apply)

The insolvency practitioner will assist all employees and help them understand all other statutory entitlements.

If you feel your company is heading towards insolvency, contact a debt charity for free consultation and professional advice.

Find the best CVL companies in the UK.

Summary

As a business, the most important thing is to retain happy and hard-working employees, as your staff is what fuels your business.

It can be disheartening when you cannot meet payday, and your staff may rely on their money to pay their own bills.

Issues that are restricting you from making your employee’s salary a priority need to be amended as soon as possible.

There are solutions available for both short-term and long-term financial difficulties.

Struggling With Other Debts

Here are some other debt guides if you are struggling with different types of debts: