Managing Salaries and Making Payroll During Economic Uncertainty

Even in the best of times, managing salaries and making payroll can often be a balancing act for small-business owners. Now, with significant changes to customer behavior and a squeeze on many firms’ sales prospects, it’s become a virtual tightrope walk.

If possible, try to get ahead of any issues by discussing hard topics such as furloughs, salary cuts and layoffs sooner rather than later, in case the need should ever arise. If liquidity or cash flow becomes an immediate concern, consider working with your team to come up with creative solutions, using the following money-saving strategies to take a more balanced approach to salary planning and payroll management.

Start by Focusing on Business Essentials

The leaner that you can operate as a business, the more money that you’ll have to put towards payroll. This means that the first step towards avoiding salary or headcount reductions that you should take should be eliminating unnecessary expenses. Begin by reviewing every line-item on your balance sheet and asking yourself: Is this expense crucial to keeping the lights on and bringing customers in the door? If not, immediately eliminate it or hit the pause button.

Likewise, consider: Is there a faster, cheaper or more cost-effective way of performing any given task? Whether you’re looking at bookkeeping, web design, or email marketing, many pay-as-you-go on-demand services and online freelance marketplaces can help you outsource for pennies on the dollar. Sample expenses you can often slash include equipment leases (which you can cancel or renegotiate), office space (which you can downsize or eliminate) and software (which can be retired or replaced with free or cost-affordable alternatives). Likewise, now’s the time to forego business expansions and capital improvement projects, reduce energy and waste expenditures and look for virtual and remote alternatives to in-person gatherings.

In addition to being relentlessly practical when it comes to eliminating expenses, if you’re having trouble making ends meet, you’ll also want to explore the possibility of bill deferment and alternative payment plans. Many banks, lenders and utility providers offer programs designed to assist small businesses that have been impacted by the pandemic. Likewise, suppliers and vendors may also be open to renegotiating payment or financing terms. Exploring all possibilities here can help you increase cash flow, keep more money in the bank and better meet your salary and payroll obligations.

Whatever you do, don’t let bills go unpaid or unaddressed, though. Like you, creditors expect to be paid in timely fashion. However, they also understand the extent of the challenges brought on by the COVID-19 pandemic. Many will be willing to work with you to come up with practical solutions that can help everyone make ends meet.

Next, Employ Flexible Work Solutions

If revenue is still a concern, take a moment to pause, step back, and remember: People are a small business’s most important asset. Before you consider cutting staff, it pays to contemplate ways that you can avoid doing so by getting creative with salary planning and scheduling.

For example, you might reduce employees’ hours, or limit work periods to three or four days per week to save money. Alternatively, you could allow certain staffers to work remotely, saving your business on utilities, energy, cleaning, insurance, equipment and other common costs. Other money-saving solutions you might employ to bridge the gap might include temporarily reducing or suspending perks and benefits, limiting or eliminating overtime and staggering employees’ workplace shifts. Likewise, if you further need to shrink your payroll, you might also temporarily freeze executive pay, institute company-wide salary reductions (either equally or proportionately to individual earnings) or cap commissions and bonuses.

The first step towards avoiding salary or headcount reductions that you should take should be eliminating unnecessary expenses.

To quickly reduce costs, some firms have asked their entire workforce to accept temporary wage cuts, while other companies are asking only top-level management and executives to do so. Others are looking to furloughs (temporary leaves of absence wherein employees may go unpaid, but still retain benefits, and are expected to return to work after some time) as a stopgap solution. Still more are seeking to find ways to avoid salary reductions entirely by assigning employees more responsibilities and tasks in order to increase each individual’s contribution to the bottom line. While the right solutions for your business may differ, all of these strategies can help make up for temporary revenue shortfalls and present positive alternatives to layoffs or terminations.

If Needed, Take a Measured Approach to Pullbacks

Cutting salaries isn’t a task you’ll relish, but if it becomes necessary, you can minimize its impact on morale by taking a more practical and considerate approach.

Case in point: Executive pay is often highest in an organization, and reductions made here (while they may disappoint a single individual) may save several colleagues’ jobs. Cuts to leadership teams’ salaries may be necessary. If so, while such pullbacks won’t be greeted with smiles, you can minimize gripes by meeting with key executive team members up front and being open and honest about your operating situation.

Likewise, it’s important to be candid with peers about the likely timeframe these reductions will apply (even if that timeframe is indefinite) and to explain that such changes are necessary because you want them to be able to keep their job. While doing so, also make a point to be a good partner by showing peers how they’re contributing to the betterment of all and making a promise to reinstate their salaries ASAP when things get back to good. Then proactively check in at regular intervals, keeping team members up to date on company progress so that they can see how they’re helping move the needle. Applying a similar approach to reductions in frontline workers’ pay, if needed, can also help ease concerns.

Lead with Collaboration and Empathy

Under any circumstance, it’s important to underscore that you’re applying a team mentality, and remind others that all staffers are in this together and have what it takes to work through current challenges in tandem. Likewise, any cuts that you need to make should come together in one fell swoop (as opposed to many smaller reductions spread out over time) and be clearly explained so that employees understand the reasoning behind them. Doing so helps maintain a sense of stability for remaining employees—underscoring that you’re, say, simply downsizing an underperforming business venture vs. looking to apply ongoing and seemingly arbitrary downsizings. It also helps remind others that you’re laser-focused on the bottom line, and that with their support, you can find ways to work through any hiccups and be on the upswing again in no time. The more everyone works together to shoulder the challenge, the more successful you’ll be.

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