Last month, I spoke with a director who ran a small construction firm in Manchester. After a major client defaulted on a £34,000 invoice, he found himself unable to pay his team’s wages. He felt embarrassed, overwhelmed, and unsure where to turn. If you’re in a similar position, you’re not alone—and there are practical steps you can take.
What to Do If You Can't Pay Staff
- Communicate openly with your employees
- Review your company’s cashflow and obligations
- Consider HMRC Time to Pay arrangements
- Explore formal insolvency options if needed
- Seek professional advice early
Immediate Steps to Take
First, be honest with your staff. Delaying or hiding the issue can damage trust and morale. Explain the situation and what you’re doing to resolve it. If you need guidance on handling creditor pressure, see our HMRC arrears advice page.
Assess Your Financial Position
Review your cashflow, outstanding debts, and upcoming payments. Can you delay non-essential expenses or negotiate with creditors? If you have an overdrawn director’s loan account, be aware this could affect your personal liability if the company becomes insolvent.
Legal Obligations as a Director
As a director, you have a legal duty to act in the best interests of creditors when your company is insolvent. Continuing to trade while unable to pay staff could lead to accusations of wrongful trading. For more on your responsibilities, visit About Chris Worden.
Practical Options Available
- HMRC Time to Pay: If tax arrears are part of the problem, you may be able to arrange a payment plan with HMRC. See our HMRC tax debt solutions.
- Company Voluntary Arrangement (CVA): A CVA can help restructure debts and keep trading. Learn more about CVAs.
- Creditors’ Voluntary Liquidation (CVL): If the business can’t be saved, a CVL allows for an orderly closure. Details are on our liquidation and company closure page.
- Administration: This can protect the company from legal action while a rescue plan is considered. See company administration for more.
Key Takeaways
- Don’t ignore the problem—act quickly and seek advice
- Communicate honestly with staff and creditors
- Understand your legal duties as a director
- There are formal solutions to help you and your employees
Frequently Asked Questions
- What happens if I can't pay my staff on payday?
- Your employees are entitled to their wages. If you can’t pay, communicate openly and seek immediate advice to avoid legal claims.
- Can I be personally liable for unpaid wages?
- Generally, liability stays with the company, but if you trade while insolvent, you could face personal claims or disqualification.
- What support is available for my employees if the company closes?
- Employees may claim redundancy and unpaid wages from the National Insurance Fund if the company enters liquidation.
- Is a Time to Pay arrangement with HMRC an option?
- Yes, if tax arrears are part of the issue, HMRC may agree to a payment plan to ease cashflow pressure.
- Should I stop trading if I can’t pay staff?
- If you’re insolvent, you must prioritise creditors’ interests. Continuing to trade could risk wrongful trading accusations.
Get Free, Confidential Advice
If you’re struggling to pay staff, don’t face it alone. As Chris Worden, Insolvency Advisor at Director First, I offer confidential, practical advice tailored to your situation. Call 0800 086 2766 or book a free consultation. You can also contact us for more support.
