I Can’t Pay Staff Wages - What Can I Do?

If your company is in a position where you can’t pay staff wages, it’s a serious and stressful situation. The reason is often cash flow problems, which is a key indicator that your business may be insolvent. It is imperative to take action immediately.

Short-Term Solutions for Cash Flow Problems

If the cash flow issue is short-term, there are some solutions you can explore:

• Talk to Your Staff: Explain the situation truthfully and ask them to wait for payment. This is most likely to work in very small businesses of less than 10 employees.
• Take Out a Loan: This could be from a family member, friend, or bank. Any loan will likely need to be personally guaranteed, so think hard about the risks. This should only be the case if you are sure the business is viable going forward.
• Invoice Financing: If late payments from clients are a factor, invoice financing allows you to immediately receive a set percentage of your unpaid invoices. A small fee is involved here, but if it means you can cover your staff wages, it is most certainly worth considering.

Long-Term Solutions (Formal Insolvency)

Ultimately, when you fail to pay your employees’ wages, they become a creditor. The best option here is to speak with a licensed insolvency practitioner about the following proceedings:

• Company Voluntary Arrangement (CVA): This often allows a business to continue trading without interruption. Deals are made with creditors about any outstanding liabilities.
• Administration: Employees are entitled to claim for wage arrears and unpaid holidays. If the business is sold, employees’ existing contracts will be transferred over via TUPE, and the new company will be responsible for handling any wage arrears.
• Creditors Voluntary Liquidation: If the business proves unsustainable, you may put your company into a Creditors Voluntary Liquidation. This ends its life, and employees are made redundant. They have the right to claim redundancy and other statutory entitlements.

Director’s Duties

All in all, the most important thing is to communicate with employees and keep them aware. You should also be sure to get advice and seek help early on. If you can’t pay the wages, the business is insolvent, and as a director, you have a duty to the creditors.