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What to Do if You Can’t Pay Your Employees on Time

As a business owner, there may be a time when you fear not being able to make payroll. Maybe it’s a slow season, or maybe the business just isn’t doing as well as it once was. However, all business owners with employees must know their responsibilities, and what they owe their workers.

This article will discuss some of the important things to keep in mind when running a business such as laws regarding your duties to employees, as well as alternative payment options when you are in a sticky situation.

Federal Laws

The Federal Government has strict rules that must be followed by all businesses operating in the U.S. The U.S. Department of Labor’s Wage and Hour Division created the Fair Labor Standards Act (FLSA)to protect laborers and ensure their rights. The FLSA has many paycheck laws and labor laws that are required by all employers to follow. Some of the most important once include being paid in a prompt manner, being paid quickly after leaving a job, the right to minimum wage before tips, and not having pay deducted based on performance.

Although the Federal Government may not give a specific deadline regarding when an employee must receive their final paycheck, State Laws usually do. Therefore, when giving employees their last paycheck, each employer must comply with the last paycheck law given by their state.

If employees are not paid correctly, they can contact the Federal Labor Department’s Wage and Hour Division, who receive and handle complaints about employers not complying with the law. Some of complaints that employees may file include:

  • Payments below minimum wage
  • Withholding pay as a punishment
  • Unpaid overtime
  • Late payment of wages
  • Deductions that an employee did not give consent to

State Laws Regarding Payday

In the United States, most states operate with similar employment laws in place. However, each one can vary depending on things such as frequency of payment, minimum wage/rate of pay, and overtime pay. Also, laws can also differ depending on the line of work. Some states like Massachusetts require employers to pay employees weekly or biweekly. However, in some state like Florida, officers and employees working for the state must be paid at least once a month. Each state can vary greatly, and in most cases have more intricate differences than the federal laws.

States always have to follow their specific laws, and can not choose to go with the federal laws if they differ. For example wage laws differ from state to state. If minimum wage in your state is higher than the federal minimum wage, you must pay the higher state wage. Employers are not allowed to choose the Federal minimum wage over their state of operation.

There are State Agencies that impose different penalties for being unable to make payments on time. There are factors that can make employment laws differ. In general, if an employer fails to pay proper hourly rates or follow hour laws, they can be hit with fees. For example, an employer who fails to make payments will be given an initial fee, followed by a second or subsequent violation, and possibly a willful or intentional violation.

What if I Cant Make Payday?

Not being able to make payday or pay employees in a timely manner is an issue. Employees who are not paid correctly have the right to take legal action if necessary. According to the Fair Labor Standards Act, all non-exempt employees deserve the full minimum wage, along with any accrued overtime in a pay period. Failure to make payments is a direct violation of the law and will result in a financial penalty, or worse.

Employees may choose to file in a small claims court, depending on the severity of the situation. A legal decision could result in a business being penalized and required to pay liquidated damages as well as back pay (unpaid wages).

In order to avoid needing a labor attorney and having attorneys’ fees, it is crucial to follow paycheck laws, and all other employment laws. If unpaid wages are an issue for you, it may be time to look at alternative options. Even if you are planning or are in the middle of filing bankruptcy, you still have an obligation to pay your employees for their full hours worked and final wages.

Alternative Funding Options

Possible solutions to this issue could include applying for a small business loan in order to pay your employees final paycheck. The Small Business Administration (SBA) offers microloans, which can be used for various tasks. SBA microloans also come with consulting services. This service can help avoid payroll problems in the future again. However, whether it is big or small business loan, these can have a lengthy application process. If approved, it may also be a while before you get your hands on the money. Applying and getting approved for a loan does not happen overnight, so keep that in mind. When trying to pay final wages, you need to get it done as soon as possible to avoid more harm.

Instead, you may want to apply for a line of credit. This option can be fast and effective at getting you the cash to pay your employees missing their workweek compensation with little hassle. As long as you have good credit and some collateral, you will most likely be approved. This option can be a great idea if you are in need of getting your hands on cash quickly. Emergency lines of credit may be a better solution for your company than shutting it down altogether.

Additionally, invoice factoring/accounts receivable factoring may also be an option. Your business would sell its accounts receivable (your invoices) to a third party. This allows you to turn your invoices into readily available funds, which you can then use for payroll obligations.

Another solution may include changing your business model and curbing expenses for a while. If needed, you may also consider taking a hit on inventory and liquidating whatever your business has in order to pay you employees. If all else fails, you can use personal assets to finish paying employees.

If you want to try to keep the business going, you may want to consider putting some employees on a furlough. Sometimes even just reducing hours can help make it easier to make payments. Although none of these options seem ideal, it may be better than shutting the business down completely.

Handling Employee Wage Complaints

If your employee(s) have already filed a wage or non-payment complaint, it is important to sit down with them and see how you can resolve things in a professional and quick way. While the complaint is happening, continue to do the right thing and pay your employee their minimum wages until the dispute is handled.

If the dispute is being handled legally, remain truthful and remember to keep all paperwork such as pay stubs or any other paperwork needed to show your side of the story. Even if you believe you are in the right, it is a federal law violation to retaliate against an employee who files wage claim. Do not fire the employee, withhold more wages, or anything that will make matters worse.

Moving Forward

If you have run into these issues and plan on continuing your business, take this a learning lesson. No business is perfect, but your employees do deserve to be paid for whatever work they do for you. Being able to reflect on these laws regarding payment can help you move forward and make sure your employee’s pay is given in full and on time.

In order to avoid getting yourself into this situation again, consider setting up financing methods ahead of time. Think about a line of credit that does not need to be paid back until you begin to use it. There is no risk with setting it up as a “just in case” tool. That way, if you run into issues later down the road, you will have money to back yourself up. This can help you avoid the serious stress and legal penalties related to late payments in the future.

About Financing Solutions Business Line of Credit

Financing Solutions, an A+ and 5 stars rated BBB company is a direct lender that provides lines of credit to small businesses and nonprofits who have at least $400,000 in yearly income.

Financing Solutions business line of credit costs nothing to set up, nothing until used and when used, is inexpensive. The credit line requires no collateral and no personal guarantees.

Organizations will set up the line of credit in advance so that if there is ever any cash flow issues, you will have a cash back up plan. The time to set up a credit line is when you don’t need it so that it is ready to be used, just in case.

If you would like to see if your organization would-be approved and for how much, please feel free to fill out the no-obligation, 2-minute line of credit application here.

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