How coronavirus chaos is affecting payroll in China
Date: Thursday, March 5, 2020
Source: New York Post
Business consultant Gary Dvorchak has lived in Beijing for the past 6 ½ years. He’s back in the US right now but only because of the coronavirus chaos.
I asked Dvorchak to fill us in on the details of that country’s troubles with the deadly virus and learned some things you probably haven’t heard before.
Says Dvorchak: “Last Friday was a day of reckoning for China in the ongoing virus crisis, which will be far more of an economic crisis than health crisis.”
Why? Because Friday was payday in a country where business has been severely crimped due to the rapid spread of a virus that has killed 2,981 Chinese citizens. That’s out of more than 3,250 deaths globally. And while the number of coronavirus cases in China have been on the decline, business is still not back to normal as new cases (119 as of Wednesday) continue to crop up.
“Last Friday was payday. Employees were to get their monthly pay. Landlords were to receive rent. Banks were to receive monthly payments,” says Dvorchak.
Some business were able to make their payroll while others had trouble. Dvorchak said employees of his company, Lan Chen Yi Management Consulting, were paid, but he had to cover his payroll from the company’s reserves. And that hurt. “Our collections in February were zero,” Dvorchak said.
Businesses that don’t have cash on reserve — they may fail, he said. “We are hearing stories already,” Dvorchak said.
“Businesses with reserves may face severe issues at the end of March, when the next payday hits,” he says. “March is a make-or-break month for the Chinese economy.”
“Until last Friday, no one knew who would be paid, who would not. Although there will not be headlines — no company ever announces it will miss payroll — quietly and confidentially people are learning the real state of affairs,” Dvorchak said.
Dvorchak says the Chinese government is trying to help companies make payroll, including by reducing payroll taxes and demanding landlords of state-owned enterprises “lower or forgive rents.”
“At a press conference last Friday, the Ministry of Human Resources instructed businesses on what they owe employees,” Dvorchak said. Holiday salaries for the extended Lunar New Year holiday, which ran from Feb. 3 to 9) are owed in full, whether companies operated or not.
For anyone who has not worked for over a month, companies are expected to reimburse living expenses. And companies had to pay workers for any vacation days not taken.
“The government is acting to be sure people are paid in the near-term. The obligations beyond Feb. 9 are unclear, and cash-strapped companies are very likely to impose pay cuts or miss payroll altogether,” Dvorchak said.
“The impact of people having no money is only beginning to be felt,” Dvorchak said.