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Can’t Pay My Employees – What Can I Do?

As a business owner, it can be extremely stressful for both parties if you can’t afford to pay your employees.

Several different factors can cause this difficult situation, such as late customer payments, declining sales, or unexpected expenses.

Whatever the problem, it’s vital to take action immediately to minimise the effects on your employees’ wellbeing and the business’s reputation.

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Business owners’ top concerns

In this era of economic downturn, the top concerns of small business owners are mainly related to a shortage of money.

Research shows 55% of UK small businesses still have unpaid invoices dating back to 2022.

Generally, large businesses have sufficient money in reserve to cover payroll, but SMEs can lack the stability of their bigger counterparts.

A shortage of money equates to the second biggest issue for small business owners – a lack of time. You may be working seven days a week doing many tasks yourself to save on staff costs.

This can include filing, answering the telephone, dealing with contractors and vendors, bookkeeping and other small tasks that normally could be delegated.

It can feel like a real kick in the teeth when you still can’t afford to pay your employees, despite your best efforts in shouldering a lot of the burden yourself.

What happens if you can’t pay your employee wages?

There are serious consequences to not paying employees’ wages. It will cause them great financial hardship, as they will be unable to pay their own bills or feed their family.

It will also dent their morale, make them trust you less and consequently will damage productivity. Staff who feel undervalued don’t want to work hard.

Some employees may hand in their notice to work for someone who will pay them. You may find it hard to retain good employees in future once your reputation is damaged.

Employees could also take legal action against you, as they have a right to be paid on time. This could have more serious consequences, as you could incur financial penalties for the non-payment of their wages.

This can all have a negative impact on your own mental health if you feel there’s no way out and your business is floundering.

How can you keep your business afloat?

While it can be financially tough as a business owner, it’s not forever. Times are particularly hard at the moment, but there are signs that the UK economy is gradually starting to recover.

The current inflation rate is 3.9% – down from a record high of 11.1% in October 2022. Economists estimate the GDP will grow slightly by 0.4% in 2024.

While we’re not out of the woods yet, there are some small signs of the green shoots of recovery.

Things are still tough, but there are still ways to protect your employees and keep your business afloat.

You can apply for small business relief, which comes in many forms. For example, you may be eligible for Marginal Relief to reduce your corporation tax bill.

You may also qualify for Small Business Rate Relief to further reduce your costs.

It can be worth your while in the longer term to use the services of a professional accountant to work out your most profitable tax options.

Chase outstanding invoices for payment. This may be difficult, as everyone you deal with may be in the same state financially.

It’s always a good idea to review your business expenses and see if there are any ways you can reduce costs.

If your need for money is urgent, as your employees are threatening to walk out if they’re not paid, you could always pawn your car.

The number of people borrowing money secured against their car has risen from 3,000 in 2001 to 30,000 in recent years.

For business owners struggling to borrow money from banks and mainstream lenders due to the time it takes, or a poor credit rating, pawning your car can be a useful alternative.

You can carry on driving it while you repay the loan.