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How to Handle Payroll When the Business Can't Pay Employees

What will happen to you as a business owner when you can no longer afford in paying the salaries of employees when the pay day arrives? There are a few options you can consider when this happens to you, which can help in managing the compensation of your team members that are working hard in earning a living.

Be Upfront

If you are not capable of making payroll or taking care of the wages of employees, that can certainly be embarrassing as an employer. It is only fair you inform the staff in advance, so they can also make preparations. Provide them with a week or more in figuring out their situation financially or look for a different job that will cover the expenses rather than informing them of the actual payday when they are expecting to be paid. Remember that they also have bills to pay and not everyone has built an emergency fund.

Dig Deeper: Payroll in UAE – What International Businesses Need to Know About UAE Payroll

Find the money

If it has become almost impossible for you to make payroll, find ways in coming up with funds as soon as possible. You can borrow money from your family members, or friends, or even take out a loan. There is also the option of making your credit cards and suspending your own salary. It is possible also that you can turn into sale or leaseback or crowdsourcing in order to finance money that is needed in paying employees.

Use your available resources

If a client owes you money, then contact this client right away and say that you will wipe the entire debt if he or she can settle half of the debt today. This can obviously hurt the overhead of the business, but at least it will cover the payroll and you will still have a business. You can have pending invoices, which is most likely. You may also have space to lease, equipment to sell, or even discounts to offer to customers on your inventory which can raise additional funds instantly so you will be able to pay your employees.

Find more: Top 5 Reasons You Should Outsource Payroll

Do not stagger

It is against local legislation to only pay employees in UAE a fraction of what is owed to them. Rather than risking committing violations and getting slapped with a massive administrative penalty, we would suggest you forgo your salary or simply ask the employees with higher paychecks to miss a payday or so in order for the business to pay the employees with lesser wages.

Delay the Payroll

Wait five or seven days following the pay period in order for the business to have time in raising payroll funds.

Still pay the members that make tips

If you belong in an industry wherein tips are normally given out like a bar or restaurant, then you may ask employees in waiting a few days prior to them cashing out their checks or see if it is possible for them to wait a week or so for the check. However, you should talk to each one of your employees as most of them live paycheck to paycheck. Those who have a bit of cash, they may be more understanding and willing in helping the business out. Of course, this does not provide you with permission not to pay them at all. You are still responsible, in the eyes of the law, in paying employees even when they get tips.

Restructure the Business

As soon as you have figured out payroll, there is a need for you to take a close look at the business model and determine ways in cutting overhead expenses so the problem does not happen again in the future.

Dig Deeper: Compensation for Employees When Businesses in UAE Close

Collect all outstanding Invoices

Invoicing should be the number one priority for a business and there is no way for you to let an invoice gets past due. When an invoice becomes past due, immediately follow up with this client to remind him or her of the invoice. With a crisis, like the one that we are all experiencing today, it is best for a business to offer a discount if the client will be able to pay immediately. When all else fails, take the client up to court and hand the collection to a local collection agency.

Payroll Factoring

Payroll factoring is great when you need to get cash flowing back again. It is where the accounts of the business are sold – the accounts receivable and have them exchanged by a lending agent or financial institution for a cash advance which you will be able to use in paying the staff members. This allows you to quickly obtain the money that you need for payroll. Lending companies can give a percentage for the amount you were owed from invoices.

If you want to know more regarding matters related payroll outsourcing UAE, call us here in Farahat & Co..

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.