Is Paying Salaries on Time Not Important?

Are you paying salaries to employees in time?

A few weeks ago, during a consulting conversation with a thoughtful business owner, a story unfolded, one that’s far too common in many small and mid-sized businesses. It revolved around a subtle, yet powerful truth: employee disengagement doesn’t always begin with a big event. Sometimes, it starts with a date.

This particular entrepreneur shared his concern that employees weren’t showing the attention, ownership, or urgency the business needed. There was, in his words, a growing distance between the company and its people. Not an open rebellion, not overt dissatisfaction, but a quiet drift.

As we spoke, one key practice emerged during our conversation: the company had a policy of paying salaries on the 15th of every month, instead of the standard 1st. The rationale, he explained, was operational. Time was needed to finalize attendance, reconcile records, and guard against last-minute resignations that left the company stranded without proper handovers.

A valid point on the surface.

But we decided to dig a little deeper. What is the actual cost of this delay, both financial and emotional?

The Math of Trust: A Simple Calculation

We examined the cost of borrowing, assuming the company was availing a loan at an interest rate of 10% per annum. That translates to roughly 0.833% per month, and for a 15-day period, it’s just 0.4165%  additional money on your salary money that you spend.

That’s the cost of deferring salaries by two weeks, less than half a percent of the total salary outflow. And it’s even lower when viewed against your revenue, which is typically 4 to 10 times higher than your salary expenses in manufacturing, and around 5 times in services, assuming your business is performing well.

For instance, if your revenue is 4 times your salary outflow, the additional expense incurred by paying salaries on time would amount to just 0.10% of your revenue, that’s merely 1/1000th of your earnings!

But then we asked: What does this 0.4165% or 0.10% “save” really cost the company elsewhere?

The Hidden (Intangible) Costs of Delayed Salaries

1. Customer Response Delays:Employees who feel unsupported or undervalued don’t go the extra mile. One missed reply, one overlooked follow-up, and suddenly, small revenue leaks become cracks in the dam. Customer service suffers—and so does the company’s reputation.
2. Attrition and Turnover Costs:Employees may not walk out the door because of a delayed salary alone, but it sets the tone. When people feel disconnected, they don’t stay. High turnover leads to recruitment costs, training costs, and knowledge drain, all of which far exceed 0.4% interest.
3. Trust and Work Culture:A culture built on distrust—assuming employees may leave without notice—creates a cycle of negativity. The entrepreneur believed that withholding part of the salary until mid-month would force employees to serve notice periods responsibly. But as I shared with him, in many small organisations with strong cultures, employees often do leave responsibly—not out of obligation, but out of respect and a desire not to burn bridges.
4. Brand & Reputation:In every great business story—from Infosys to Tata Group—there’s a common thread: timely payments, respect for people, and a value-first culture. As Ratan Tata once said, “If you want to walk fast, walk alone. But if you want to walk far, walk together.” That “togetherness” begins with trust—and trust begins with timely salaries.

Beyond Numbers: The Emotional Return on Investment

It’s easy to measure cash flows. It’s harder to measure culture. But anyone who has built or rebuilt a business knows: culture compounds faster than capital.

When people feel respected, paid on time, and supported, they work harder. They stay longer. They speak positively about the company outside office walls. They become ambassadors. And that goodwill, though intangible, drives very tangible business results.

So yes, the 15-day delay may “save” a little interest. But it costs the company in loyalty, efficiency, goodwill, and brand equity—currencies far more valuable than a fraction of a percent.

Final Reflection

The advice I gave that day was simple: Pay salaries on the 1st. Not because of policy. But because of philosophy.

When employees feel you’ve got their back, they’re more likely to have yours.

And in a business climate where every small edge counts, a culture of timely respect may just be the biggest edge of all.

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