One of the greatest challenges a business faces is the ability to pay salaries and provide employment benefits in difficult times. The employer has the obligation to pay remuneration even when business is bad or there is no business at all. The employment relationship is not a convoluted one, as it simply requires the services of the employee in exchange for a fixed salary. Consequently, the inability of an employer to pay salary may lead to a loss of confidence employees that depend on their employers for their financial obligations.
There are many reasons why an employer may be unable to afford salaries for their employees, which include, but not limited to a loss of clientele or customer base, a bad business deal or transaction, and lack of capital for business expansion. Another reason is a seasonal lack of business as a result of the current global pandemic that is currently ravaging the entire world- the Coronavirus/Covid-19. Whatever the reason might be, it is expedient that the employer takes immediate actions. This article provides some useful tips on what employer can do if they can not afford their staffs' salaries because of the outbreak.
Employer is an individual or organization that gives work to someone in exchange for remuneration.
Employee is an individual that has been hired by the employer to provide certain services for a pay.
Contract of Employment is simply a document that defines the relationship between the employer and employer. It outlines terms and conditions of employment, including but not limited to salary, benefits, leave, and the work policies.
When an employer can not pay salaries, some employees may send their Resignation Letters, come to work late frequently, lose interest or motivation to do their work, while some may even stage a strike. The consequences are far-reaching, hence, it is important to know what the employer can do to avert these problems.
Consequently, one way out of financial crisis is to find a way to raise money. This can be done by taking a loan from family and friends, financial institutions, or personal loans.
Another way to raise money is to collect debts. Employers can call their customers and clients who owe them money and demand the money owed. One way to do this is to send a Monetary Demand Letter. In some cases, the employer may receive positive responses, but if this is not successful the employer can recover their money through other legal means.
Also, the employer can sell company assets. Employers can sell their organization's assets or properties to raise funds. Assets include land, building, plant, and machinery or any other valuable property that is owned by the organization.
Alternatively, employers can contact suppliers and manufacturers to supply goods on credit. If the employer's business involves the sale of goods or items, they can arrange with their suppliers to have the goods available to them with the intention of paying back the price of the goods when they make profits.
The employer should consider cutting down all unnecessary expenditures. The employer should identify expenses that are necessary for the production of goods and services they provide and remove expenses that do not benefit the organization. Certain recurrent expenditures, such as office equipment and supplies, staff salaries, are necessary to keep the employer in the business. However, money expended in hiring independent agency or external service providers, such as external solicitors, human resources, company secretaries is considered unnecessary. Instead, employers should give such tasks to their current employees, as this will save the employer a lot of money.
Another option for the employer is to temporarily reduce the salaries of top management of the organization, to enable them to raise money to pay staff salaries. The employer may also reduce bonuses and allowances to ensure that employees are paid their remuneration.
Employees appreciate the opportunity of adding value to an organization and may provide the best ideas on how to manage an organization and keep the business afloat. An employer can solicit ideas from their employees on how to raise money to pay salaries. Some employees may Request an Unpaid Leave of Absence, and some may agree to continue working without pay while expecting that they will be adequately compensated when the employer's business booms again.
The employer can circulate Memo, inviting staff of the organization to a staff meeting where the issue will be discussed and the employees should be given the opportunity to make useful suggestions and proffer practical solutions to the problem.
Imposing compulsory holiday or leave of absence involves asking employees to take an unpaid leave of absence for a specific period or until the government eases the lock-down and business reopens.
A leave of absence or furlough is a temporary time off granted to an employee while maintaining their status as an employee of the organization.
The employer can negotiate a Leave of Absence Agreement with their employees, especially for those whose physical presence is required to do their job, such as drivers, cashiers, cleaners, and so on. However, the employer can provide a Remote Work Policy for employees who can work from home.
By issuing a Notice of Termination, an employer can layoff or terminate the employment of some staff whose services are no longer required or useful due to the pandemic and retain the services of other employees whose services are highly required or in great demand. This means that the employer will have fewer salaries to pay.
This option should be considered as a last resort- that is when other options have proved abortive.
During uncertain and difficult times like this, the government is forced to implement certain rules and policies to limit the spread of the coronavirus, one of which is the closure of non-essential businesses or public places. The resultant effect of this is that these businesses may lose their customers and clients and may be unable to pay salaries.
This article provides options that may be available to employers who, as a result of the global crisis, can no longer pay salaries. These include, but not limited to, obtaining loans, collecting debt, reducing salaries, granting mandatory leave of absence, and in extreme cases, laying off some non-essential staff. Whatever the case may be, an employer should have an honest conversation with their employees to seek the best way to handle the problem.
Vivian Umelue is an attorney and legal templates programmer at Wonder.Legal and is based in Nigeria.