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How to Manage Payroll in a Crisis

Last updated: Oct. 8, 2021 

Originally published April 20, 2020

From better managing cash flows to taking out loans, here are some ideas to keep staff paid.

The COVID-19 crisis has forced some companies to close their doors and others to see lucrative contracts cancelled, supply lines dry up and customer demand plummet. Many small businesses are wondering how they can keep paying employees with revenues taking a hit. With no clear timeline as to how long social distancing might last, most owners are racking their brains to figure out how to manage payroll right now.

“Everything is ten times harder right now,” says David Wood, a Toronto-based controller and finance manager. While staff are worried about their jobs, customers are few and far between, yet the work might be taking longer, often because people now have to work from home.

Fortunately, businesses do have options, though they may have to think more carefully than they usually do about how to keep their staff paid. (The Canadian Payroll Association has a helpful guide on various payroll and COVID-19-related issues). Here are some things to consider.

Use Government Subsidies

Ideally, you want to keep staff on the payroll. While revenues may be falling, if you can afford it, keeping your team might allow your company to discover new opportunities. Unlike in past downturns, the Canadian government has stepped in to help keep staff employed. It’s offering a subsidy to cover up to 75% of the first $58,700 of an employee’s salary, though it only applies to businesses who have experienced a 15% drop in year-over-year revenues in March and a 30% drop in year-over-year revenues in subsequent months.

Penny Longworth, FBC’s director of human resources, recommends asking employees to take vacation now while revenues and workload are down instead of laying them off temporarily. You can use the subsidy to fund up to 75% of their salaries while they are using their banked time off.

At this point, just how to apply for the subsidy is not yet clear. However, the funds should help your staff get paid.

“While revenues and workload are down, you could also redistribute the work through a voluntary reduction in hours, allowing you to retain your employees,” Longworth says.

Submit a work sharing agreement to Employment and Social Development Canada. The program provides employees with EI benefits to supplement their wages.

If you need help figuring out the details, and there are many, talk to someone who can help. “Many of the programs being announced by the various levels of government are related to payroll,” says Don Latchford, FBC’s director of finance. “With the ongoing changes to the rules, it’s important to either take the time to keep current, or work with someone who can make sure your business is protected and you’re accessing the tools available to you.”

Consider Loans

If your company needs a little bit of cash to make payroll before it can potentially pivot to a new revenue generating activity (a lot of manufacturing companies have started making medical equipment, for instance), you might consider taking out a loan to pay your team. The federal government has introduced a number of new loan programs to help small businesses.

One loan to consider right now is the Canadian Emergency Business Account (CEBA), which provides businesses an interest-free loan for one year of up to $40,000 – $10,000 of that can be forgiven for companies that meet certain criteria. Think carefully about whether to take on debt – if you don’t pay back the loan within 12 months, you will start getting hit with interest. Debt can make sense if you think you’ll be able to get revenues going on again so that you can pay back that loan, among your other expenses.

Manage Your Costs

If you can manage your cash flows properly, then managing payroll will be that much easier. A lot of larger corporations are cutting executive pay so that they can keep employees. Others are asking employees to reduce their own salaries or work four days a week instead of five. One of Wood’s clients instituted a 30% pay for all staff, including slashing her own salary.

There are many other ways to cut, too, whether it’s adopting more efficient technology, talking to your company’s telecom to reduce the cost of your firm’s mobile phone plans or asking your landlord to defer rent until money starts coming back in. (Many of Wood’s clients are working in cooperation with their landlords so both parties can stay afloat.) Now’s the time to scrutinize all of your expenses and see where you can save.

RELATED: Learn how to manage cash in a crisis.

Improve Your Payroll System

If you are dealing with a smaller team and reduced demand, now’s a good time to reorganize some aspects of the business. That could include putting better payroll software in place. Many small businesses owners still write checks themselves or use an excel spreadsheet to keep track of salaries. Shop around for software that can automate this process, which will then allow you to focus on more business-boosting tasks.

If your business is larger and has more payroll demands, you could work with a company to help manage that part of your business.

Debate Layoffs

At some point, you may have to do something more drastic, such as layoffs. Letting people go is not an easy decision, and it’s particularly difficult right now from an emotional perspective. “For many owners, this is the first time they’ve had to let a lot of people go, and for reasons not related to their performance,” says Wood. “They don’t want to lose these people.”

It’s a heartbreaking choice for many owners, but there are ways to help staff even as you’re managing payroll. One of Wood’s clients paid all her staff two weeks of additional pay, to make sure they’d be fine before receiving their first employment insurance check.

For some companies, it’s not always clear who to lay off. Wood has clients who have stayed open part time, but hourly staff, worried about their health, didn’t want to keep coming to work. “You’ve got to talk to them to see what they want to do,” says Wood. Those tough conversations can make sure everyone moves forward in a way they’re comfortable with.

If you must temporarily lay-off employees, Longworth says you should advise them to apply for the Canada Emergency Response Benefit. They can receive $500 per week if they’re not working due to COVID-19.

Longworth says if you’re forced to permanently lay-off your employees, you may have to provide severance.

“We recommend that you seek legal counsel to determine what severance amount is appropriate for the employee(s) who will be terminated,” she says.

When it comes to layoffs, Latchford says, “It’s important that a small business understand what they need to do, should they need to reduce the number of employees on payroll. Having a good payroll company supporting them have never been more important.”

Business owners who don’t have sufficient cash reserves to make payroll or who have no plan B to keep their business going in a crisis are finding things extra difficult. These tough times require that every small business do what they can to endure and put better systems in place for the future.

Contact FBC

These are unprecedented times. The entire world is focused on containing the COVID-19 pandemic and small businesses everywhere are in a fight for survival. As with government and medical efforts to control the virus, speed and agility are essential for effective small business management. You know how important it is to stay updated on information that impacts your business.

It can feel overwhelming to have so much information to navigate and sift through each day. Especially when you are doing everything you can to navigate your business through these perilous waters. While you’re doing your best to weather the storm, it’s good to have someone in your corner. That’s why we’re here. We’ll provide you with the latest information, advice and insights in our COVID-19 Resource Centre.

Unlimited consultation related to tax matters is a key benefit of FBC Membership. If you’d like to learn more about how we can support your business, request a free consultation online.