Q: In spite of our best efforts, we are not going to be able to make our next payroll. We expect to receive the needed funds but will be about 5 days late. We have about 40 employees, about a third of them are hourly. What are the legal implications and do you have any other advise?

A: By our “best efforts”, I expect you mean that senior leadership has already exhausted all of their “Beg-Borrow-or-Steal” options. I’m talking about personal savings, lines of credit, short term loans, credit card cash advances, anything short of a shady loan shark.

I say this because -unless you are an adorable, scrappy start-up staffed by interns, 1099ners and founding partners, in which case you might get away with a “Oops! Growing pains!” fig leaf –missing a payroll is a cardinal sin. Not only does it send a loud signal that the company is not being run responsibly, it can deliver a mortal blow to future trust in leadership. Going forward, even if you pay everyone in 5 days, you might have trouble recruiting talent (word gets around), and perhaps also retaining talent (“how did they let this happen”, “what if it happens again?” “I better look elsewhere”).

But let’s assume you know all that and already tried everything and now have no choice. How can you do some damage control?

1)      Ask your senior leadership to forgo all pay until you are solvent.

2)      Take whatever funds you DO have and give priority to your hourly staff. They are less likely to have disposable income and savings, and more likely to be harmed. So, do your best to pay all of them.   Also, non-exempt (hourly) workers have more legal protections than non-exempt (salaried) employees, so doing the right thing will also lessen your legal exposure.

3)      Give everyone a heads up ASAP. It’s tempting to try to keep bad news quiet, but the sooner you let workers know, the sooner they can put stop-payments on automatic withdrawals for mortgage, utilities and such. They’ll have more time to maneuver; perhaps a CD can be cashed, money can be moved around, or borrowed from family, anything to avoid overdraft fees from the bank and late fees from vendors.

But, don’t despair, you won’t be the first or last company to go through this. Major payroll services like Paychex and Quickbooks have tons of helpful tips on their websites for this very reason. Good luck.

Disclaimer: Not intended as legal advice

©Copyright Eva Del Rio

Eva Del Rio is creator of HR Box™ – tools for small businesses and startups. Send questions to Eva@evadelrio.com