Ensuring timely payroll is a critical and challenging responsibility for any company, especially for startups. Even during periods of financial constraints, it is essential to prioritise meeting payments among other operational costs. 

In today's fiercely competitive world of work, punctuality is not only expected from employees but also from employers, particularly when it comes to salary disbursement. This is because the payment serves as a well-deserved financial reward for employees' hard work and dedication. Moreover, prompt salaries play a significant role in boosting employee morale and productivity, ultimately leading to improved profitability for the organisation. 

To gain deeper insights into the impact of not paying salaries on time, People Matters reached out to industry experts. They shed light on the reasons that make punctual payment a crucial factor in a company's ability to grow and succeed in today's business landscape.

1. Employee dissatisfaction

Delayed salary payments can lead to employee dissatisfaction and frustration. “Employees may feel undervalued and unappreciated, leading to decreased motivation, morale and overall employee dissatisfaction. This, in turn, can have a detrimental effect on the overall work environment and employee engagement,” stated Cynthia Gokhale, Associate Director, Corporate Communications, ManpowerGroup India.

2. Layoffs

Late payments don't just impact employees; they can also have ripple effects on clients. Sanjay Tiwari, Founding Partner of 21CC Education, shared how certain large corporates intentionally delay payments for months, possibly in the hope that the recipients will eventually give up and go away.

“This kind of conduct reflects poorly on businesses. Fortunately, I have been fortunate to work for companies with robust value systems that prioritise meeting their commitments to employees. This also means making tough decisions during challenging times, like laying off employees. It's better to make difficult choices than to let the entire company suffer and risk going under. As the saying goes, ‘take care of your people, and they will take care of your customers,’ and I truly believe in its validity,” he said.

3. Employee exits 

The retention and turnover of employees can be directly impacted when a company fails to pay a paycheck on time. Delayed salaries can shatter the pillars of loyalty and trust within a company. “The feeling of negligence among workers who may feel undervalued and unappreciated can further show discontentment. Firms are subject to the effects of high turnover rates with the loss of qualified individuals, which can result in additional recruitment and training costs and have a negative impact on team dynamics,” emphasised M Prerna Chauhan, AGM-HR, Media Mantra Group.

4. Damaged employee morale

As employees rely on their monthly income to cover essential expenses like rent, bills, groceries, etc. delayed salaries can lead to severe financial hardships. “Financial stress in their personal life will directly affect their performance at the workplace and impact their productivity and damage their morale. Employees preoccupied with their financial security may feel more stressed out, less productive, and less satisfied with their jobs,” said Mr. Sumit Kumar, Director and Founder, Headsup Corporation.

5. Legal risks for employers

Not only is it unethical, but not paying salaries to employees on time is also against the law. “Failing to make timely salary payments can have legal and regulatory repercussions for businesses. Also, non-compliance with labour laws can seriously harm a company's reputation in the marketplace. The effects of late salary payments can immediately start deterring potential employees from joining while seriously damaging the employer's reputation in today's interconnected world, where news spreads like wildfire,” explained M Prerna Chauhan.

6. Undermines brand reputation

With the onset of social media and digital corridors that amplify the voice of the employee, word gets out quickly and spreads like wild fire. Non-payment of salaries on time can have a long lasting detrimental impact on the reputation of the brand “which will have its own repercussions as far as prospective employees or clients are concerned. They will find it difficult to attract new talent. Clients will not want to work with organisations who cannot keep their employees happy,” said Gokhale.

7. Reduced loyalty and commitment

Frequent salary delays create challenges for employees to maintain loyalty and commitment to their jobs and the company, as it gradually erodes trust in the employer. Employees perceive such delays as a lack of sensitivity towards their basic well-being, leading them to view the organisation as untrustworthy. This perception can foster a desire to reciprocate similar behaviour towards the organisation,” explained Ms. Shalini Sharma, AVP – HR, Codleo.

8. Recruitment challenges

Companies that pay late or irregular salaries can have a major impact on new recruitment. When employees don’t get paid on time, “prospective employees may be unwilling to join a company with such a reputation, making it difficult for the organisation to attract top talent and retain a competitive workforce,” the Founder of Headsup Corporation told People Matters.

9. Financial hardships 

Late salary payments, regardless of the reason, can have a detrimental impact on employees. Such delays can put employees in financial distress as their livelihood depends on timely payments. This financial strain may hinder their ability to perform their duties effectively and can adversely affect their professional and personal commitment. 

“Employees facing such circumstances may experience significant personal consequences, including stress and potential accumulation of debt. Moreover, the increased financial stress can adversely affect their work performance and work-life balance, posing a serious threat to the smooth functioning of the organisation,” stressed AGM-HR, Media Mantra Group.