As a small business, delaying payment to employees or not paying terminated employees may be the first step you take when trying to save money. However, if you don’t pay your employees regularly not only does it negatively impact you but also the way that employees perceive your business.
Money helps to sustain your employees’ lives and is a driving force that impacts many of their choices outside of work. It is also a determining factor when they are choosing a place to work. Your employees are a crucial part of growing and sustaining your business, so if their income affects their security in any way, it’s going to impact their productivity. This means that their payday is directly related to the overall success of your business.
There are also potential legal ramifications of not paying your employees on time that could result in penalties, fines, and a damaged employee-employer relationship. These are issues that can be easily avoided by sticking to a strict pay period schedule.
With that being said, here are some reasons why you should pay your employees on time:
Nearly every state has laws in place to ensure that employees are paid biweekly. Other states only require weekly or monthly payments. No matter what the state laws are, there are procedures set in place in the event of a missed or late paycheck.
Employees have the right to file a claim to their state employment agency. This often results in an investigation of the business. The outcome of the research can lead to a lawsuit against the employer or possible forfeiture of their business license. Not only will the business owner need to pay the employee the back owed amount but they will also likely end up paying fines and penalties as well.
There is no federal law that dictates how often you have to pay employees. However, you do have to keep a regular payday – no changing it several times on a whim. That’s not to say you can never alter it – but it should be for a legitimate reason, it should be permanent, and it should not impede with overtime pay or meeting the federal minimum wage – otherwise, you’re looking at Fair labor standards act (FLSA) violations.
If you find yourself in a situation where you are unable to pay your employees on time, the first thing you should do is examine your business model and determine where other costs can be cut. Just remember that your employees are your most important asset, so it is essential to keep them happy by paying them for the work they have done.
More Productive Employees
s I mentioned earlier many employees rely on a stable paycheck. If you are not paying them consistently you may suddenly find yourself losing your best employees which are the driving force behind your success. And that’s before the U.S. department of labor (DOL) eventually gets involved to enforce labor laws in your state.
By paying employees on time consistently, you are essentially saying that you appreciate their contribution to the workplace and want them to remain employee at your business. This, in turn, will make employees want to stay in their jobs long-term. It also keeps you from getting in trouble for violating employment law.
When an employee’s pay is stable, they can spend more time focusing on their job and worry less about their financial security throughout the business day. Since they are not worried about their finances, they can be more present in the workplace leading to higher productivity and quality of work.
Save On Hiring costs
When your employees are not paid on time, they are more likely to quit and find another employer. The resulting cost of that employee leaving due to not being paid ends up being far greater than merely paying the employee in the first place. Below are just some of the costs to consider if you were to lose an employee and have to find another to replace them.
- Lost productivity – It may take a new employee several months to years to be as productive as their predecessor.
- Training costs – This includes training on new procedures or software.
- Workplace culture impact – Other employees might be affected by the high turnover rate.
- Hiring costs – This includes job advertisements and the time spent interviewing and screening potential applicants.
- Attorney fees – if non-payment of wages grew to such a size that legal action was taken, you’re going to be looking at expensive legal fees to determine how much you owe for your former employee’s wage claims.
What if you can’t afford to pay employees on time?
Business has its highs and lows – and it’s possible you’re facing an extraordinary low that’s leaving you unable to meet your regular rate of pay for an extended period. If that’s the case, it might be time to seriously consider downsizing to the minimum workforce you can manage to continue operations.
It’s also possible that a change in the way you hire employees could be in order. You could look to hiring independent contractors or freelancers taking an hourly rate if that would better serve your current business model. You’d have these workers for a lesser number of hours than a full-time employee, but you wouldn’t have to worry about overtime hours or paying on a semimonthly schedule, and – if you hired competent workers – you may end up with more impressive results at the end of a workweek than before.
One downside is that you wouldn’t be the only client these workers served, and you might be subject to sudden price increases in between contracts as they have nothing stopping them from raising their rates on a whim.
It is clear to see how heavily not paying your employees on time can impact your business. You should always have a business plan in place to ensure that your employees are paid on time, every time. The benefits of doing so far outweigh the potential repercussions. So do yourself and your employees a favor and have a sound financial foundation in place to guarantee the success of your business.