It’s really rare these days for a growing company to ever do its payroll by hand. Everyone signs up for a traditional payroll service, such as ADP or Paychex, or a newer SaaS payroll service such as Gusto.

I’ve seen companies go through this drill more than once. Two in particular stick out as having taken opposite approaches: one based on trust, goodwill, and a belief that the employees create value for the company, and one based on distrust and a view that payroll is just an expense to be minimized. You can choose your path, but one is more sustainable and resilient than the other. Choose wisely.

Inevitably, your company will have payroll screwed up – Friday morning, you’ll get emails and texts from your team asking about why their direct deposits have not shown up. These communications will mark the beginning of a very stressful day. But crisis management, big or small, all boils down to the same outline. Here’s how you can deal specifically with the most common payroll hiccups and get your team to the other side in as good a position as you can hope. Not following this path – particularly by not telling them the truth – risks having a major trust deficit to overcome once the dust settles.

Follow these steps:

0. Prevent– understand when your payroll has to be submitted and create a plan (read this post!) for what to do if there’s a payroll problem.

– A sizable chunk of payroll problems are self-caused: companies don’t submit timesheets before the company’s processing deadline.

– Sometimes you can arrange for a shorter deadline. The pro tip here is not to submit at the new deadline; it’s to submit on the regular deadline and use the slack to prevent problems when there’s a mixup.

1. Communicate – as soon as possible, send an email to all affected employees or contractors giving them facts – no conjecture, no false promises. You need goodwill from them to get you through this more easily; you don’t want to squander it by being less open with them than you would want them to be with you.

– be direct – short sentences without bureaucratese. Unless your lawyer or HR lead understand this, don’t let them near the keyboard.
– be clear – simple sentences, not long ones with qualifications and passive voice and “notwithstanding” and “provided, however”
– Describe the step in the process that didn’t work – this specificity shows, not tells, that you’ve investigated and are actively engaged in finding a solution.
– provide an estimated time for resolution, based on information from the payroll company. This timeline might be the time it takes you to resubmit and them to process, or it might be from their internal disaster recovery plan.
– provide the team comforting language describing the steps you’ve already taken and give assurances that you’re working to resolve the “systemic” issues that might be in play. “Solving things twice,” if it isn’t already part of your corporate culture, just got added. Fix the problem in front of you, and then fix the things that caused it to be a problem.

2. Communicate specifically – if people contact you about problems, you’re going to want to respond to each of them individually so they feel heard.

– This talk doesn’t necessarily have to be the CEO, but someone has to be speaking on behalf of the company to each of these folks. You get trust by being trustworthy.

3. Plan for two scenarios – end of month (if you’re a 2x/month payroll) and mid-month/other payrolls.
– end of month – the urgency here is that many of your employees will have scheduled automatic payments for rent and mortgages. Those amounts are relatively large compared to the payroll amount.

– mid-month – if you’re a 2x payroll company, many of your employees will have scheduled other payments to go out at that time – car payments, loan payments, and credit card payments.

– in either case, you will likely want to tell people that:
(1) you will reimburse late payment fees and overdraft fees that are reflected on statements.
(1A) you may wish to provide a letter from an appropriately senior official of the company to the employee and ask them to try to negotiate away the fees.

(2) you will want to have a mechanism for advancing money to people who will have a problem with not having cash (“I don’t have money for groceries”). That can be issuing an advance of some kind (you have to consider whether and how you would get money into their hands – you probably can’t use the payroll system or your AP system to get them money), and you can do that either automatically to everyone or to individuals who come to you with problems.

(3) in some cases, you may wish to give employees a “compensatory” payment or token of appreciation so that you don’t lose any goodwill from the mistake. This will be more important if the delay was caused by the Company’s mistake.

Keep in mind that about 40% of US households say they can NOT easily handle a short-term need for $400. That group certainly includes some of your employees. (That 40% is for all households; it is higher for certain racial groups and higher for households with a layoff in the past 12 months.)

Whether this payroll problem is your fault or your payroll company’s, you want to try to find solutions for your team to avoid major consequences.

4. Plan for potential state-level problems
– California, for example, imposes a penalty of $100 for the first non-willful payment delay, and for any subsequent or willful delay, a penalty of $250 AND 25% of the amount that was delayed. In that case, for example, you would want to work a lot harder to pay people via an alternate method to try to avoid penalties, especially if you’ve already had one problem. (See Step #0.)


5. Contact your payroll provider again – it would be ideal if they would compensate you for their error. Your contract may provide, however, that they do not have any liability for simple negligence (meaning you’ve agreed to release them from that potential liability and the price is effectively reduced because they don’t have to insure against those risks). If you saved money by not having coverage for problems, invest that money in preventing and solving problems.

– if they have a process for reimbursements, follow that.
– if you have an account representative, you can ask for a discount or one-time credit. You can at the very least ask for a refund of the payroll fees for that one payroll because the service wasn’t performed correctly.  
– if this is the result of a difficult or manual or confusing or multi-step payroll process, look for ways to simplify the steps. For some companies, that means using either the payroll company’s time and attendance software or software that has a supported API integration to avoid manual steps.

6. Prevention, part 2

If you have repeated external problems, you should look for a new provider. These problems (particularly if there are mandatory state penalties) can erode your employee goodwill. The way this kind of mishap turns out is definitely related to how good your employee relationships are – if they are antagonistic, you should expect a more difficult time with complaints, possible complaints to the state labor department, and union grievances if applicable. On the other hand, if your employees feel valued and trust management, they will take the explanation at face value and help you solve the problems by, for example, not asking for an advance they don’t need or by not complaining loudly if the short delay doesn’t really inconvenience them.


Payroll problems are almost inevitable with complicated systems and processes. Like any other risk, you likely can’t eliminate it, but you can manage it.