No Money to Pay

We are having financial issues like many companies. We are having difficulty funding our payroll and we were late last week by 2 days but made it. It doesn’t look like we will have the funding for next week’s payroll. Should I recommend to the President that we lay off all employees? At least they could apply for unemployment or look for other possible jobs.

Well, based on that one paragraph I'm not sure I can give the best answer. Instead I'll ask another question: Why the all or nothing approach? Will you have zero money coming in, or would you be able to retain some people? How big is your business? If you lay everyone off (except, I presume, the president) is that different than shutting down the business? Is there chance of recovery in the near future?

The answers to these questions all make a difference. But as a general rule, I dislike letting people hang. And that's what you are currently doing to your employees. If their paychecks were two days late last week, they know why. They are all stressed out about the situation.

It's my understanding that in most, if not all states, the company not paying you is reason to be granted unemployment. So, people could already do that if they wanted to.

I think it's unethical to let people continue working when you have no intention of ever paying them. If, on the other hand, you have the intention and evidence that strongly suggests you will be able to pay them in the very near future, that's a different thing.

What I would do is figure out how much money you have, who your key players are, what the consequences would be of terminating everyone you can't afford to pay and creating a plan to save some of the people and the business. That's HR's job: to help the business.

This will mean letting some people go (no matter what), but I think it's better to be upfront with people: We are terminating you because we won't be able to pay you, rather than telling them that their paychecks will be coming "soon." Last week's pay was 2 days late, this week's is 4 days late, next week...

And keep in mind that you need to pay them for work already performed, so that needs to be on the list of priorities.

Basically, the situation stinks and there isn't a lot you can do to make it better. But making people come to work when they won't get paid makes it worse. You may find that some people prefer working with the possibility of no pay to being terminated with the guarantee of no pay.

You may also find that a more creative approach is possible. Can you offer people shares in the company in lieu of paychecks? (Check the laws in your state. Don't know if this is legal or not, just a thought!) If your employees become owners they may be able to solve problems they can't solve now because, why put effort into a job that may or may not pay you?

One thing is for certain--this isn't an easy situation to be in. People are not going to walk away happy. But at least put some thought into the plan and figure out the consequences of each action.