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What happens if you can’t make payroll?

On Behalf of | Jun 2, 2023 | Employment Law

Running a company is no easy feat. It is not unheard of for a company to get into financial difficulties and be unable to pay its employees on time. However, employees are entitled to their wages, and failure to pay on time may result in legal repercussions.

Not paying wages is not an option

Wages are essential to the daily lives of employees, who use them to cover basic needs such as food and shelter. If you are unable to pay your employees, they will have to rearrange their budgets. Employees who are frustrated enough may pursue legal action against you for violating the Fair Labor Standards Act (FLSA).

The law strongly favors employees, so there is a high likelihood of receiving a court order to pay employees and fines.

Paying employees late or withholding their wages also violates the California Labor Code. Late paychecks may result in a penalty of $100 for the first offense and $200 plus 25% of the amount withheld for subsequent offenses.

Employees may also enforce the labor code and initiate a civil action against your business under the Private Attorneys General Act (PAGA). If your employees succeed, you may be required to pay up to $100 per affected employee per pay period.

Minimize damage by prioritizing payments

When times are tough, consider being open and transparent with employees about the situation. Consider asking them for some flexibility if you are confident that you will be able to pay them in the near future. Employees may be less inclined to take legal action if you involve them in the conversation and they see you working toward a solution.

In the midst of financial strain, you may also be considering laying off some of your staff. The at-will employment rule in California states that either the employer or the employee may end the employment relationship at any time, with or without cause. However, you still need to pay a fired employee for the hours they already worked.

Most companies cannot afford to lay off workers since doing so would be detrimental to the business. Payroll should be your top priority if you want to keep your employees by your side. You might consider using your personal funds first, liquidating company assets or applying for a business loan.