Can’t Make Payroll? How To Run Payroll On Time With Low Cash Flow

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Can’t Make Payroll? How To Run Payroll On Time With Low Cash Flow

If your business depends on employees (as most do), then you know the vital role that payroll plays in your organization. For many small business owners, payroll is the lifeblood of their business. It ensures that your employees are paid on time (every time) and that your organization can continue operating like a well-oiled machine.

But what happens when the money simply isn’t there? If your business sees strong seasonal downturns or intermittent periods of low cash flow, then delayed payroll can be a regular and very serious issue. Managing cash flow for your entire organization can be complicated, especially for staffing companies and businesses that require high payroll expenses.

So, what happens if payroll is late? What can you do to mitigate the risk of late payroll? Finally, what are some solutions to help you manage cash flow issues and ensure that your employees get paid on time every single payday? We will answer all of these questions and more, but first, let’s look at why running your payroll on time is so important.

The Importance Of Running Payroll On Time

Running payroll on time is not just about maintaining standard operating procedures for your business. Late payroll can have a variety of negative effects on the stability, efficacy, and profitability of your business. Here are just a few reasons to avoid delayed payroll at all costs:

Legal Obligations

According to the Fair Labor Standards Act, employers are required to pay employees on predetermined pay days each and every pay period. If you fail to pay one or more employees the full compensation for their hours worked, you could face lawsuits and other legal repercussions. Even though partial payments may seem like a temporary solution when you’re experiencing poor cash flow, they do not fulfill your obligations to compensate your employees according to the law.

Employee Retainment

While some employees may be willing to accept delayed payments, the vast majority will not — and for good reason. In addition to being a legal obligation to pay your employees on time, you also have an obligation to keep your employees satisfied in their positions at your company. Disgruntled employees are far more likely to deliver subpar results and delayed output. If you are unable to resolve late payroll quickly, you will likely lose out on quality talent. Workers simply don’t want to work for an organization that cannot provide them with timely compensation.

It’s also important to consider the effects of delayed salary to employees. As an employer, it is your responsibility to ensure the financial security of your current employees. While you cannot tell your employees how to handle their finances, you can provide them with the income they need to thrive. Without consistent paychecks, your employees could experience financial hardship, housing instability, and even mental health issues.

Late Payroll Penalty

In some locations, when you fail to make payroll on time, you face a late payment penalty. For example in California, you are generally liable for a $100 late payroll penalty fee. However, this is just for first-time offenders. If you are late twice, you will need to pay $200. On top of these fees, you will have to pay 25% of the owed amount. For example, let’s say that you fail to pay an employee their $1,000 weekly salary on time. Assuming this is your first time making payroll late, you will have to pay $100 + $250 for a total of $350. Thus, in this example, you would end up having to pay 35% more than the base salary just because you couldn’t make payroll on time.

Payroll Taxes

If you are having cash flow issues that prevent you from paying your employees on time, there’s also a good chance that you won’t be able to make your payroll tax payments on time, either. This can cause even greater financial woes for your business. An employer who fails to pay their share of payroll taxes on time will almost always be subject to interest and penalties. Payroll tax payments that are 1 to 5 days late will incur a 2% penalty, while payments that are 6 to 15 days late will incur a penalty of 5%. Finally, any payroll taxes that are more than 16 days late will incur a 10% penalty, plus accrued interest.

Lower Profits

As previously mentioned, late payroll can have a devastating impact on your workforce. Between decreased productivity and increased turnover rates, you will almost certainly see a major hit to your bottom line. Companies that fail to address low cash flow and delayed payroll often end up in the red. Thus, making payroll on time should be one of your top priorities as a business owner.

Make Payroll On Time With Payroll Funding

If you absolutely can’t make payroll on time due to delayed invoice payments or seasonal cash flow issues, you will need a quick influx of funds to cover employee salaries. This will ensure that your business can operate as usual until the invoices have been paid or your revenue returns to normal. While there are various methods for business owners to acquire cash, a payroll financing solution may be the fastest and most cost-effective method for small and medium-sized businesses.

If you are unfamiliar with acquiring and utilizing a payroll funding company’s services, the process is far simpler (and cheaper) than Merchant Cash Advances (MCAs) or invoice factoring. You can get a payroll loan for small business that is specifically designed to help you cover a short-term lack of cash. Unlike other types of business loans, payroll funding is not meant for general business expenses; it can only be used to make payroll.

As you can see from the figures above, making payroll late can end up costing your business thousands of dollars over the short term, to say nothing of the long-term consequences. Fortunately, a small business loan through a payroll funding company makes the process of getting a cash injection far easier. You don’t have to meet the same stringent requirements as you would through a traditional lender, nor do you have to pay the high interest associated with other kinds of short-term loans like MCAs.

Resolve The Core Reason Why You Can’t Make Payroll

In many cases, a payroll delay is simply the result of poor cash flow. If you have delayed accounts receivable or seasonal cash flow issues, then a payroll finance loan is the best solution for you. Tight cash flow doesn’t need to be a problem that plagues your business for the long-term. Instead, you can easily get the cash you need to run payroll on time.

However, it’s important to remember that not all cash flow issues can be resolved with payroll financing. For example, if you simply want to get an influx of cash to start a new endeavor for your business or handle non-payroll expenses, then you should seek out funding through other means. That said, if your cash flow problems are the result of rapid growth, delayed accounts receivables, seasonality, or fluctuations in demand, then payroll funding is a great solution.

So, are small business loans for payroll right for you? If you’re interested in learning more about the advantages of payroll funding, feel free to reach out to Payro Finance today!

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Morris Reichman
hello@payrofinance.com

Morris Reichman is the founder and CEO of Payro Finance. Former Vice President at Infinity Capital Funding an alternative finance company, Morris possesses a versatile background in the finance industry. Having spent 7+ years working across global macro operations and start up corporate finance Morris's expertise is in business accounting, risk management and investment analysis. Morris founded Payro Finance to support business owners and ensure their business continuity.

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