
Ask HN: What to do when your company misses payroll? - twistedanimator
Starting in May, the hardware startup I work for has been having some money problems. They've deferred payroll a couple times, including the most recent pay period.<p>A couple days after the last missed payroll, I indicated I would be working from home but not in a full time manner. Since then, everyone else appears to continue going into the office and working full days even though they have not been paid. Am I wrong in my actions?<p>The most upsetting part for me is that on payday, no one in management mentioned we would not be getting paychecks. It seemed like they figured we wouldn't mind/notice and we would just continue working.<p>I have updated my resume, but have not sent it out yet. They keep saying money is right around the corner and I'd like for that to be true. So I've basically been waiting that out while keeping my eyes open for opportunities (which are sparse).<p>Does anyone who has been through this before have any advice? Or how would you have handled it if you could go back and do it again?<p>EDIT:
Thank you all for your insightful comments.<p>After hearing how often this thing doesn't turn itself around, I am going to start sending my resume out immediately. I guess I just needed a community kick in the ass to get me going!
======
jm4
You should have started sending out your resume when they missed payroll back
in May. Not only does this place have some serious financial problems, but
management doesn't even have the decency to let people know ahead of time.
That's pretty sleazy in my book. Even if you could rationalize giving the
place a free pass on a missed payroll there's no excuse for them not even
mentioning it.

Don't fall for the line about the money right around the corner. You'll be
hearing that from now until the time you leave the company in debt up to your
eyeballs because you've been living off credit cards instead of the paychecks
you should be getting.

I know people who have been in this situation before and none of them had any
stories about how the company turned the corner. It turned uglier instead.
More missed payrolls- sometimes for a month at a time. Stress. Thousands of
dollars of debt due to living off credit cards. Showing up to a locked office
one day without any notice. Working the last month sitting on a crate in the
owner's living room because the money is still right around the corner.
Protests on the owner's front lawn. In the end if you'll be damn lucky if you
leave with some office furniture or a laptop. Forget about money.

You should be out finding a new job ASAP. Any job. This is worse than being
unemployed. You're off working the day at an office and not getting paid for
it. At least when you're unemployed you've got some time on your hands to do
something more productive than doing free work for some greedy asshole. You
could very well show up to work tomorrow only to be laid off. Or even worse-
the door could be locked.

~~~
joezydeco
jm4 makes a good point. Get any personal items out of your office ASAP. Do it
slowly and quietly, do it after hours if possible.

Just prepare for the possibility that one morning the doors may be locked when
you show up.

------
tjic
There's a lot of good advice here telling the employee how to act. I concur
with most of it.

Let me add something from another perspective:

Speaking as a startup owner who has had money problems from time to time:

a) crap happens

b) your hourly people, who have no equity, deserve every single cent. Whether
answering phones, stuffing boxes, or whatever, these people work hard, and you
MUST pay them every penny, on the day it's due.

c) Folks who have equity, and will see some upside in good times, can be asked
(ASKED, not TOLD) if they are willing to make sacrifices for the success of
the team. Ask them ahead of time - preferably well ahead of time.

d) When a startup has successes, it's because of your people. When a startup
has problems, it's because of leadership. Get out your spoon and start eating
shit ^H^H^H humble pie. Tell your people that screw ups happened, and -
because the buck stops with you - YOU are the cause. Apologize to your people.

e) LEADERS LEAD FROM THE FRONT.

The last point is the most important. Before an owner asks anyone to take even
a temporary pay cut, he should cut his own pay to the bone. Before he misses a
payroll for other people, he should have already skipped a paycheck or two.

Startups come and go, but 50 years from now, your reputation, and your sense
of self will still be with you. Make sure that you are scrupulously ethical
with your people.

Travis J I Corcoran, President SmartFlix

~~~
edw519
"Startups come and go, but 50 years from now, your reputation, and your sense
of self will still be with you. Make sure that you are scrupulously ethical
with your people."

Goes without saying, but sure is nice to see anyway. Thank you, Travis.

[Aside: Don't compromise the quality of your otherwise excellent posts. Move
your signature and company link off of your comment and onto your profile
where it belongs. You are obviously a pro. Look like one here.]

~~~
tjic
I intended to have the sig block, so that folks could see that I wasn't just
pontificating about what others should do.

I have, however, removed the link.

Good point. Thanks.

------
edw519
"What to do when your company misses payroll?"

1\. Invent a time machine.

2\. Go back 30 days.

3\. Run, don't walk, the other way as fast as you can. This won't end pretty.

Steps 1 & 2 are desirable, but optional. Step 3 is required.

(I'm not using the time machine to be cute or funny, but to make a point. This
problem didn't just happen when you found out about it. They knew long before
you and did little or nothing to help you. Shame on them.)

------
synnik
I've been in 2 startups that didn't have cash for payroll.

Startup #1: The CEO took payroll out of his own personal credit cards and paid
us all anyway. That startup went public and grew to be very successful.

Startup #2: The CEO was already a millionaire, but wouldn't put in a cent of
his own money. That startup failed.

In short, if the CEO cannot find a way to pay you, then he isn't cut out to be
the CEO. Don't leave because payroll was missed -- Leave because the
leadership isn't there. But by all means, LEAVE.

~~~
bmj
This is very good advice. I worked for a small start-up when I entered the
industry. After two years, due in part to factors outside of the company's
control, things started to look bleak. One of the founders, my boss (and the
only other programmer) pulled me aside and explained everything to me (the
other founder talked to the sales and marketing guys). He told me I was free
to walk away, and he would gladly recommend my work. Or, I could stay on, work
part-time for the company and part-time for his consulting business (this was
the primary source of his income while he did the start-up). I really
appreciated how upfront the founders were about the situation.

------
grellas
I have been doing startup work in Silicon Valley since 1984 and have seen all
the variations on this.

It all depends on the facts. When a startup struggles and misses payrolls, it
is legitimate for the executive team to ask employees to stay and help the
company through the struggle. Each employee then must decide based on his or
her individual circumstances. Employees will have varying stakes in this. The
employee who, say, owns 1-2% of the company via stock options may have a
different motivation from the one who owns little or no equity, particularly
if the company may eventually have a huge upside with a turnaround.

If the sacrifice is significant, though, then the employees should at least be
offered some additional compensation for the added risk they are taking in
potentially working for nothing. A commitment to give them added option grants
if the company turns it around does this well.

This hits the founders and investors, but it should hit them - they are the
ones asking people to do extraordinary things to help them save their dreams
and they are the ones who will most benefit if it can be saved.

If this is done with options, there are no special tax complications. Nor does
it cost anything to make a letter commitment that can be documented formally
after the turn-around once the company has money again.

The one thing that has shocked me most over the years are the management types
who expect employees to take the hit in such situations but who will not lift
a finger to reward them for making a special sacrifice.

Others have mentioned secretiveness as a danger sign for the employees. I
would add to this any display of unfairness such as a failure of management to
recognize that special sacrifices deserve special rewards.

Of course, some cases are hopeless and then the only remedy is to run for the
door, as many have noted.

------
TallGuyShort
I worked for a small startup and had that problem several times. It was never
a long enough amount of time that I really questioned whether or not I would
get paid, but it did annoy me and the way the owner handled it made a very
'awkward' work environment. He generally gave an explanation as to why it was
our fault, and why we shouldn't question him. Eventually I just left. He was
very upset when I quit. He felt that I really owed him something just because
he had hired me.

So what did I learn? He was a jerk anyway, and it wasn't worth working for
him. Fortunately, the economic climate was more forgiving 4 years ago when
that happened, and after working in landscaping for 2 weeks, I got a great job
that I loved.

If you're really that concerned, go ahead and look elsewhere. If you get some
pretty solid connections, go ahead and present your concern to your manager.
Depending on his reaction, I don't think you need to feel like you're letting
the company down by leaving. If they can't pay you when they said, they at
least owe you a very good explanation.

~~~
moe
_He felt that I really owed him something just because he had hired me._

Never fall for that trap. I have seen quite a bit of this attitude - mostly
pulled off on younger employees during salary negotiations.

In fact I have witnessed it so often that I think this must be something they
teach in business schools, probably under the "optimizing employee
performance"-tab.

You don't owe your boss anything beyond the regular performance that you are
paid for. In most companies I'd even go as far as to say that _they_
technically owe _you_ for the various "extra miles" that have become the norm
in our industry.

And I guess that's exactly the point they are trying to camouflage when they
attempt to push you into the guilt corner.

~~~
calaniz
I agree. I negotiated my salary the first three years I was working full time.
I did it politely and with respect. Truth is, you've got to look out for
yourself.

------
johnnyg
A business exists to make money. If it can't pay you, it isn't making money
and either should not exist now or will not exist in the near future. There
are rare exceptions, but the odds are so bad that I would not take the chance
or extend the trust.

There aren't enough specifics in your write up to know for sure what to do.
However, either you hold equity or you do not and that should be a major
factor.

If you are an equity holder in this company and it is a funding issue, not a
core business issue, I would stay and see it through. Sometimes you can cut
way back on the leverage and nurture the core profit with the equity holders
you have.

If you are an employee, exit as diplomatically and respectfully as you can.
Why? You made an agreement with your company to trade services for pay. They
have defaulted. It sounds like they have done so without a heads up. This
shows a lack of integrity on the part of management and is even more troubling
than the cash.

There are things in the world that can blind side a good management team -
abrupt law changes, competitor introduces game changing technology, key team
member leaving, etc. However, pay roll is a cash flow issue and one management
teams can look ahead and predict.

If a management team can't predict, process and pay payroll, how well can they
execute on the things that make your business money?

If they can execute on payroll but have chosen not to, or to not tell you, are
they people that you should throw your lot in with?

~~~
twistedanimator
You bring up a very good point. I do not have any equity. I was always
promised it, but of course it never materialized.

------
RiderOfGiraffes
Note added for clarity: this was not a startup, it was a long established
company with around 30 employees. It is in an industry where raising funding
would be a disaster and guarantee no orders ever again.

I was working for a company some years ago, and pay started to get late. No
word from management, no explanations, and when it did turn up, no apologies.

We were all starting to look to jump, and some did. I found out what really
was going on and started to make serious plans.

I won't go into full details, but after about 6 months we managed a hostile
management buyout. We dealt with some unpleasantness from some people who
jumped early, and half of those who had stayed were made redundant. That was a
horrible, horrible thing to do, but we had no choice - we had no money. It
cost us a bundle, but it was the only way to save the company.

The ones who stuck with us are now secure in their jobs, have equity, have 50%
of the six months of missing pay restored (we weren't responsible or liable,
but we honored it anyway) and have a fantastic work place.

In the middle of the worst, when negotiations were bad, we asked a few people
why they were still working 5 hours a day, four days a week, when they hadn't
been paid for three months, and everything was uncertain.

"We don't want to work with anyone else." was the rather humbling reply.

Since then there have been months when cash-flow was tight, and money wasn't
on time. Company directors, I have learned, are legally obliged not to
destabilise the company, and telling employees the exact situation when money
is tight can be regarded as that. It's not always the owners' fault. Employees
are quick to say "You should've told us." but legally, the situation is not
always that clear.

I have to say that we, the directors, never took more pay than the employees
until they were back on full pay. even then we took 1/4 pay for a further few
months, then 1/2 pay until the cash-flow stabilised. We never asked employees
to forego pay without ourselves first taking nothing.

I'm not making excuses for your bosses, nor suggesting that you stick it out
and hope it all works. My employees did, and they're very, very pleased about
it. I stuck it out, took steps, and now (part) own the company.

Take control, one way or another. In a smaller company, jumping is not the
only option.

~~~
CGremlin
"telling employees the exact situation when money is tight can be regarded as
that"

Not telling the employees there is a non-trivial chance they won't be paid for
their work when you have actual knowledge of such could pretty easily be shown
to be theft of services/fraud in front of a jury, and almost certainly
piercing the corporate veil in the process. It's simply not right to force
your employees that have no equity in the company to assume financial risk on
behalf of the owners, particularly without the employees' knowledge.

------
frankus
Definitely shop your resume ASAP, simply because there's no downside: you
don't have to quit unless/until you get a better offer, and if the money does
come in you're set.

The company I worked for went through this a few years ago, but pulled out of
it and was doing well for a while.

Nonetheless I got a zero-day shitcan from them about a year ago (let go on
Wednesday and paid through Friday, with another half month of medical/dental).

Don't be more loyal to the company than they would be to you.

------
jellicle
Get out of there fast. Also note that very probably the company isn't sending
the money it's supposed to be withholding from your paychecks to the
government, so you will have tax problems this year, that are the company's
fault but you will end up having to resolve.

I.E., your paystubs say the company withheld $5,000 from your paychecks and
gave you $10,000. You file your tax return, and the IRS comes back and says,
"We don't know what you're talking about, Company X didn't send us any $5,000.
You can go ahead and send us the $5K now though."

Missing payroll is a VERY VERY VERY VERY bad sign. Do not continue to waste
your time working there for free.

~~~
iigs
The counterpoint to this is a bankrupt company may well not have ever reported
your income to the IRS, at all.

Process that however your ethics guide you.

------
olefoo
One thing that you should do is network with your soon to be former coworkers.
Set up a mailing list, start talking about what is happening and help each
other find jobs. I've had to do this once or twice, though never at a place
that outright missed payroll. But be prepared for the fact that most of your
coworkers are in denial.

Depending on the state you are in it may be that management broke the law.
Generally speaking, if you can't make payroll you are supposed to dissolve the
business then and there and pay employees by selling the assets of the
company.

And yeah, if management didn't even have the cojones to tell you that there
wouldn't be paychecks on payday, the place is doomed and there is no helping
it.

Good luck.

------
brk
The problem is that this situation creates a death spiral for the company. If
they are missing payroll they are literally out of money. Any investor willing
to put money in is going to do their due diligence. This means the investor is
going to be aware of just how badly the company needs this investment, which
typically leads to the terms being very unfavorable, which typically leads to
your equity being very unvaluable.

So, without knowing more about the specifics at this point, I would say that
you are working for free, and unlikely to have any stock options you have ever
amount to anything of value.

Everyone has their own reasons, but one of the reasons _I_ work for startups
is because of the equity. When the future value of the equity is at or near
zero, it's no longer an interesting or worthwhile proposition for me.

You should have a good enough feel for the pulse of the company to know if
there if you are close enough to sustainability that maybe a little extra cash
will get you across the finish line, or just delay the inevitable. My guess
though is that it is time to start looking.

------
RiderOfGiraffes
Some comments about resumes ...

If you apply for a job with me, I want to know why I should employ you. I want
to know how you will add value to my company. I want to know that you will
bring skills and abilities.

Do you know what I want? You should. You shouldn't just read the ad for the
job - you should find out what my company does, _then_ read the ad, and work
out how your skills will help me meet my goal of making money. If you can't or
won't do those things, I probably don't want you to work for me.

What skills do you have? _How can I tell?_

Can you work on your own? _How can I tell?_

Can you work in a team? _How can I tell?_

Will you get things done? _How can I tell?_

I don't really care about your education, or your recent jobs, unless they
show me why you are the right person for me. And I want to read that on the
first page, preferably in the first paragraph, and preferably without typos,
grammatical errors, or anything else to distract me. I don't at this stage
really care what your name is, or how to contact you, or whether you can
typeset 16 different fonts on the same page.

Why should I employ you? What do you think I want, and why should I think you
have it.

And good luck in whatever you choose. You could choose to put your resume in
your profile here on HN.

------
yannis
Been there before. Best get out as soon as possible.

~~~
russell
Likewise here. If the company had any prospects of funding, they would be more
open. Get your resume out now. There is no harm in working for a while longer,
so long as it doesn't interfere with your job search. Also check with you
state employment office, because you probably have wage claims which may go
ahead of other creditors. (IANAL)

EDIT: Your coworkers are still working because they dont know what else to do.
They are going through the motions on hope.

~~~
edw519
"Your coworkers are still working because they dont know what else to do."

Email every one of them the link to this discussion. Give them a chance to
"know what else to do".

~~~
russell
Bad advice. Dont burn your bridges. You may need recommendations from your
boss or he could sue out of spite.

WRT your coworkers, I was thinking of stories of people would get ready for
work every day, go sit on a park bench until quitting time, and go back home,
because they couldnt face the fact that all the meaning in life was gone.
People have a hard time dealing with major setbacks like death, divorce, or
loss of their job.

~~~
edw519
I disagree that this is bad advice. Perhaps I didn't make myself clear enough.

You are in a time warp. This game is over. It was over long before OP posted
here.

You are on a sinking ship and must jump. Your co-workers are in the same boat.
Some may even say you have a moral responsibility to help them. In real world
disasters, some risk their lives to help others escape. Sending this link to
your co-workers could greatly benefit them while costing you _nothing_.

You have no bridge to burn. Your boss already burnt it. Any recommendation
from someone who let this happen to his people is worthless.

I don't blame your boss for having business problems. That can happen to
anyone. I do blame him for letting it reach the point where it would affect
his employees without fair warning. This is inexcusible and unacceptable.

From a practical point of view, you are much more likely to get a good
reference from helping out a co-worker than from a boss who has already
screwed you. So do it.

~~~
yannis
I have been unfortunate enough to have been the General Manager of the Company
when this happened. I had no equity. I tried my best to keep everyone
motivated and paid myself last to the detriment of my own family. I thought
the Captain is supposed to be the last to leave.

I believed that the Company could have turned around, but needed the capital.
However an under capitalized Company has a very slim chance of being
successful. Even if you stay and work, you become an observer as everything
you build starts to crumble and your hands are tied.

My recommendation still stands. Get out as fast as possible and remember, when
one doors closes another opens.

------
bkovitz
Here's my experience with this. Maybe it will shed some light on your
situation, maybe it won't.

At one particularly insane start-up, I went two months without a paycheck. It
was such a bizarre place to work, and so interesting, I didn't care. The
company officially went under. The State of California has ruled that they owe
me $30,000 (including the penalty for not paying). I'll never see it.

They did, however, call a meeting and tell everyone when they were unable to
meet payroll. There was no attempt to deceive the employees about this. There
was no psychological pressure put on to continue working.

Bottom line: While they were meeting payroll, I made really good money—better
than 99.9% of the human population. I learned lots of cool stuff, did some
cool stuff, and lived in luxury despite working in a warehouse with a cement
floor (I don't care about that sort of luxury, anyway). Even after two months
without pay, I had saved up so much in the bank that I was still in nice
financial shape.

I would do it again. The big danger, at least for me, is that the company
might have taken a long time to officially terminate. The smart thing to do
would be to set a date: if payroll isn't back on track by that date, then I
move on. In hindsight, I was lucky that they officially crashed in only two
months, since that forced me to leave and start making money again.

------
icey
I have been in your situation. My advice is to get out before the company goes
under and forces you to compete with everyone else you work with for jobs.

Even though your company has not been very stand-up with you, don't burn any
bridges. You never know when that kind of stuff will come back to bite you in
the ass.

------
miracle
It depends on where you live. In european countries (I'm pretty sure that it's
the case in Switzerland) you will always get your salary for the last 3
months! If the company goes bankrupt, an insurance will pay.

~~~
jellicle
Sadly, the U.S. has no equivalent insurance program.

------
quellhorst
Offer to accept hardware in lieu of payment, get as much as you have to sell
to get repaid. Find another job right away.

~~~
iigs
I worked at a company that missed payroll. They told us that they "couldn't
stop" us from taking our laptop and marking its fair market value against what
we're owed.

I asked about the desktop next to my laptop. "Can't stop you." "The Server
under the desk?" "Can't stop you."

I drove home with fourteen PCs in the back of my car. It was so heavily loaded
I had to peer over the hood. This was early 2003 and I'm _still_ getting rid
of them.

It made the eventual "yeah you had some entitlement to money but there wasn't
any after the lawyers got done with it" letter all that much more sweet. :)

------
rokhayakebe
If you are going to work a few weeks for free, you may as well think of a good
small business application and build it. At least you will make money from it
or you can add that to your resume.

~~~
ryanwaggoner
Be careful about intellectual property ownership bullshit here.

~~~
nostrademons
I'm curious how that works out if you're not getting paid for your time at the
company...

I thought part of the employment agreement was that you'll be compensated for
your work. If you are not, does the agreement still hold up?

~~~
rosser
The IP assignments I've signed when joining a company (and always gotten
modified in my favor to varying degrees) have never said anything about
whether or not they have their shit together enough to pay me. In my
experience, they tend to boil down to: anything you do on company time, with
company equipment, or at the company's request belongs to the company, full
stop. You might be able to argue that you weren't on company time if you
weren't paid for that time, but the other two clauses should cover that
handily.

At my present job, I use my own laptop, and got the agreement winnowed down to
just the third of those -- they only own my work if they specifically asked me
to do it. (Granted, I'm not writing a lot software here, and what software we
do write just exists to facilitate our core business, so I doubt they'd have
any qualms about any of the developers modifying their agreements similarly,
anyway.)

~~~
nostrademons
Right, but I seem to remember something in various state laws about a contract
not being a contract unless there is "consideration" involved, i.e. both
parties are receiving something of value. That's why so many transactions are
for $1, eg. wealthy CEOs and Arnold Swarzenegger taking a salary of $1, old
school buses or old surplus military equipment being sold for $1, etc.
Regardless of what's written down, the transaction isn't a valid contract
unless both parties receive something.

IANAL, this is all just idle speculation, consult with a real lawyer before
you actually rely on this.

~~~
BrentRitterbeck
That's pretty much what I remember from my business law class, but then again
I was often annoyed by the professor's little skits and rarely frequented
whole live lectures (search _Robert Emerson University of Florida_ if you
haven't had a chance to see what nightmare the students go through).

------
abecedarius
A friend of mine has been through something like that, not happily; here's
another employee of the same startup telling the story:
<http://www.sixdemonbag.org/yomu.html>

(Summary: founder trying to keep stringing everyone along gets convicted of
securities fraud.)

------
Dobbs
So I was working for a company that stated withholding paychecks. My boss was
very charismatic and we had a client or two that owed us a very large amount
of money. Due to these facts I and many many others stuck around long after we
should have. In the end I was owed several thousand dollars, about 6
paychecks. The company is now being sued by many people, and it turns out
hasn't payed the IRS for the last two years. My advice is to get out now. It
just isn't worth the risk. Possibly stick around until you find a new job but
look desperately for a new job.

------
uptown
Aside from payroll, your company is likely facing massive amounts of debt to
their creditors.

While you may have an emotional connection to the company, bill collectors
acting on behalf those with outstanding invoices with your company will have
no such connection. There's likely a backlog of unpaid invoices that will also
need to be paid. Employees walk ... creditors sue. Your company will pay
creditors first, and is likely to leave you guys hanging.

~~~
brk
No, legally, the employees get paid first.

~~~
uptown
I've seen first-hand that companies don't always do this.

Perhaps once a company files bankruptcy there's more oversight with this ...
but before that happens, I've absolutely seen a company trying to cover its
ass and limit its legal expenses by closing out unpaid invoices and stiffing
their staff.

~~~
vidarh
Norway has (had? I moved to the UK a decade ago) a great protection against
this: Be late with payroll and any employee could have the company bankrupted
without paying a fee. All it took was filing a form.

Now, of course, at the bankruptcy hearing the company might be able to pay
money due to staff and avoid being put under administration and shut down, but
it's a very effective way of ensuring companies keep on the good side of their
staff when cash gets tight.

Taxes also pay for a fund that covers back payment of salary for up to 6
months in the case of a bankruptcy where staff have been more lenient, and so
provides both a safety net and a reason for staff to be more accommodating if
there's hope of improvement.

------
ja27
My company came very close to missing payroll several times in the dark days
but we always pulled it off. In the same period I saw a close partner company
reach the point where they were paying partial paychecks (barely above minimum
wage) before they finally folded. I also have a friend who went from almost
$5m in the bank to almost $1m in debt trying to keep his company afloat.

Bottom line: if it's a one-time (or once-in-a-while) thing where the cashflow
just got held up, that's one thing, but if it's been multiple times now, it's
time to get out. If they're just waiting on one big payment from a single
customer, run out the door. It'll never happen.

But don't burn your bridges. I work with many people who left our company in
the "dark days" and have come back now that we're more financially stable.

------
cjbos
I recently left a startup that was in a similar situation, though I think they
were alot more open about finding more investment (It was however always just
around the corner).

I'd advise you to leave now, especially if the founders/management have
decided not to take anymore pay themselves, thats usually the sign there is
only a few weeks (Not months) of cash left.

