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BLUF - If your company is struggling, is it okay to miss payroll regularly?

My past employer has always had a problem managing their finances. When I first joined the company and started my office, they missed payroll 3 consecutive months. Then things got better, although, whenever the soft season came around, they would have problems making payroll again.

I left the company in August. I have heard from former co-workers that several offices have been shut down, staff has been reduced by 60% and things are not going well. No surprise, since they are really a nasty bunch to work for, and their ideas always failed. During my time there, nobody stayed more than 1.5 years. Now I read this on a business blog, written by the GM and founder of the company. I know it is him, since clicking on his id takes me to the company homepage.

Per his own words
"When times are tough, morale allows you to create ‘artificial credit’, by allowing flexible payment of staff. This flexibility, whether it be late payment, delayed bonuses or equity in return for salary, means that you can weather the storm, and bounce back"

What do MT'ers think of this! Is it right under the current conditions to let your staff work hard for you when you know you do not have the money to pay them as required in their employment contract.

Looking forward to learning from you all.

jhack's picture

Missing payroll is a bad thing. Choosing to do so repeatedly, and treating it as a cash flow management technique, is beyond bad management.

That said, it happened to me. The situation was very specific: early stage startup company, happened only once, and was presented as: "We have to defer payroll. If you can't manage without it, we'll get it to you. We have a demo next Tuesday for [prominent venture capital firm] and everything hinges on that demo."

The entire team knew the drill, we nailed the demo, and became a success in our market. We knew the risks from the beginning.

That's a far cry from missing payroll regularly.

Renegotiating contracts to replace cash with equity would be ethical (if high risk). This becomes a choice the employee makes (stay and get paid less, or seek fortune elsewhere). In many places, the boss can simply say: "Across the board 40% pay cuts!" Not pretty, but honest.

Bonuses are just that. In tough times, there are no bonuses. Commission and other variable pay, however, should be honored.

John

mdave's picture

jhack nailed it....

One other drawback. Employees won't stay if payroll is played with (esp. on a regular basis). Seems that this sort of turnover will have a positive feedback loop on missing future payroll.... Seems that it would be hard to stay in business for very long.

Gareth's picture

[quote="mdave"]jhack nailed it....

One other drawback. Employees won't stay if payroll is played with (esp. on a regular basis). Seems that this sort of turnover will have a positive feedback loop on missing future payroll.... Seems that it would be hard to stay in business for very long.[/quote]

How would the company react if you missed work regularly?

In my opinion, if I don't get paid for my work and I don't feel the reason is justified then I will be looking else where!

[quote]Bonuses are just that. In tough times, there are no bonuses. Commission and other variable pay, however, should be honored.[/quote]

100% Agree with this. Our company is currently cutting back! And I would expect people to be will in sacrifice their bonuses.

Gareth's picture

[quote="Gareth"][quote="mdave"]jhack nailed it....

One other drawback. Employees won't stay if payroll is played with (esp. on a regular basis). Seems that this sort of turnover will have a positive feedback loop on missing future payroll.... Seems that it would be hard to stay in business for very long.[/quote]

How would the company react if you missed work regularly?

In my opinion, if I don't get paid for my work and I don't feel the reason is justified then I will be looking else where!

[quote]Bonuses are just that. In tough times, there are no bonuses. Commission and other variable pay, however, should be honored.[/quote]

100% Agree with this. Our company is currently cutting back! And I would expect people to be willing to sacrifice their bonuses.[/quote]

fchalif's picture

Your situation appears chronic in that it has occurred before!!!!

This is the worst possible behaviour from ownership as far as I am concerned. I mention ownership because their is no way payroll is not met and ownership not met. It is the most basic of duties that ownership must honor.

As John suggested, if there are legitimate reasons and good trust between ownership and employees, than packages can and likely should get renegotiated. people need to know what to live on!

You need to truly assess where you are and whether this employer has any redeeming advantages for you to stay on. If you are not to be paid for your current work, you might as well be looking for employment elsewhere. The market is difficult, but it is a full time job to look for a job.

US41's picture

[quote="jhbchina"]BLUF - If your company is struggling, is it okay to miss payroll regularly?
[/quote]

Bottom line: get out now. That is a sign of a company that is going down. Start the job search. Unemployment in the US is currently 6.7%. That's higher than recently, but not terribly high. The Depression had unemployment as high as 16-25% in some years. You can still conduct an effective job hunt and land a good job.

As to the legality... lawyers in different companies in various states and countries will say differently from one another I'm sure. I doubt it is illegal or anything. Most states enforce that payment must be made twice a month or something like that, but I doubt companies actually have to deliver paychecks on a fixed schedule. They just do that for their own convenience, not as part of some promissory agreement with employees.

I infer from missing payroll regularly that your company is actually going to some trouble in order to save money, since sending out checks on a schedule is something they do to benefit themselves. That would be a lot of detail work for them to manage that. If they have to do that to find some spare coins, then they probably are not well managed. Which is no huge surprise, since almost nothing is well managed. Most management is awful. You can tell it is from all of the postings about people's bosses trying to stop them from holding one on one meetings.

jhbchina's picture

Dear All,

I got out in July. I just can't believe that the GM would actually post this on a business blog as a way to survive the current economic conditions. Certainly a foolish thing to do.

JHBChina

HMac's picture

[quote="jhbchina"]BLUF - If your company is struggling, is it okay to miss payroll regularly?[/quote]

No.

-Hugh

bflynn's picture

One item that jhbchina didn't mention - this company is in China (and I presume this manager is Chinese). It could be a cultural thing. You're right though, what he wrote crosses the Galactically Stupid line, especially when linked back to the company. But then, perhaps that's why he has trouble making payroll? Most people call this condition bankruptcy.

Nice call on making the move in August.

Brian

jhbchina's picture

BFlynn would be absolutely correct if this company was managed and owned by the Chinese. Unfortunately, this company is a WOFE, Wholly Owned Foreign Enterprise. The co-founders are British and Australian, which makes this behavior even stranger.

stephenbooth_uk's picture

Would you pay staff who didn't show up to work? Probably not. Why should they show up for work if you're not going to pay them?

Missing payroll, other than as described by John (i.e. delaying it for a clearly communicated reason), is pretty much the last thing you should do. M&M have said, in the lay off immunisation cast, that you should have enough cash to survive 6 months with no income. All very laudable but that's simply not possible for many people,to save you must have disposable income. Many people live pay cheque to pay cheque not out of choice but because their income is such that they have very little disposable income, increasing numbers of people (in particular single adults) have no disposable income after essentials (rent/mortgage, fuel and food) are paid for. Building up a financial cushion is realistically impossible to many people. A missed or delayed pay cheque can mean missed/delayed rent/mortgage or other payments, once may not be too much of a problem but if it happens repeatedly (which is what is described here) then it could lead to repossession/eviction and a broken credit record. Putting your staff in that position shows incredible contempt for them, you may be able to get away with it now but when the economy recovers it may get harder.

Stephen

finnigan's picture

When the whole credit crisis blew up in the fall, banks got a lot tighter on operating lines. At the same time a lot of companies have stretched their payables so you got two large blows to your cash flow at the same time. Having said that, in almost 20 years we have missed payroll by about a day on maybe 3 occasions, but never more than a day. We would not be late even a day if we could process cheques instantaneously. If we were to be later, its a competitive marketplace out, there and I believe that no matter how much staff love you, they need the stability of a regular paycheque. Heck, I do, even though I could go without one for some time.

If you cant make payroll, you have a problem with receivables, no lines of credits, no business backers, no friends. While I hate doing it, if we are going to have problem with payroll, I grab cash from all 4 sources. The point being is that if you cant make payroll fairly regularly, which one of these four are you missing?

terrih's picture

We didn't get paid today... they are saying it was a technical glitch and it's already been fixed, but our direct deposits may not show up in our banks until Monday.

This is NOT a common occurrence here... in fact, I can't remember the last time they were late with payroll. However, it may be the last straw for some. I have one direct who's been here five years and hasn't had a single raise, despite my efforts. NO one has had a raise in that time unless they got promoted, as far as I know.

It sure makes ME think.

DHumble's picture

@TERRIH - I'd give them the benefit of the doubt and believe that it was a technical glitch.  I'd also want specifics.  What exactly was changed that caused the glitch? etc.

On to missing payroll.  Not only is it not actionable, but a quick call to the states department of labor can make that clear, but should be a last resort.  I have a story about how I handled this:

I was consulting for a Fortune 100 company.  I was being paid by a tier 3 vendor (in other words, the fortune 100 company paid a company that paid a company thatpaid a company that paid me).  The project I was manageing was to comodotize contingent labor.  IE managing the consultant time sheets payroll etc, with a new web based system.  So I was effectively managing my own stuff too, but that's ok.  We had a policy that you could only go 2 levels deep even though I was 3 deep, but I didn't care about that.  It was a good gig, and I enjoyed the work for the most part (if it was all fun, I'd have to pay admission in the morning instead of getting paid.)  4 or 5 times I had trouble getting paid.  Finally one day when I hadn't been paid for about 6 weeks, and I had been working hard with the companies between me and the client, I walked into my bosses office and said "I'm sorry, but I wont be coming into work tomorrow because I can't seem to get paid."  There was a look of shock on her face (one of the things we did was make SURE consultants got paid).  After she recovered, she took acrion.  She got the contact information for my person who was supposed to be paying me, and told me that she'd make a call and get me paid.  I got paid via western union in about an hour.  She also told me that if it happened once more, to let her know and I'd be paid directly by the client, cutting out the chain of vendors.  I never had a problem again. 

Effective managers want their people paid, and usually want them paid more.  Either that or there's some coaching and feedback going on.  I'll put it this way, I want all of my people to get out of their positions.  There are two ways this can happen.  They can advance thier skills, roles, and responsibilities which results in a new posiyion and / or better pay, or they can refuse to change, and be fired eventually.  BUT they will always get paid for their work.  It's WRONG on so many levels to agree to pay someone for the work, have them do the work, and then not pay them.

terrih's picture

We've been paid successfully since the one glitch, and I do believe it was a simple glitch.

I do WANT my people paid more, but I don't have the power to make it happen. My boss doesn't have the power to make it happen. The HR director doesn't have the power to make it happen. I suppose I should try again; it's been a while since I tried. Hate beating my head against a wall, though.

scm2423's picture

if it was all fun, I'd have to pay admission in the morning instead of getting paid