Thursday, October 22, 2009

Compliance Update—October, 2009

We’ve been out in force in various areas of the state as of late and have seen some really interesting situations where employers aren’t following payroll tax laws properly.

In one particularly sad case, we received a call from an employee who complained their employer wouldn’t issue them a W2. They were paid in cash and tax was withheld from their pay as shown on a handwritten pay stub. The employee wanted to file their individual tax returns to claim a refund of their withholding but could not because their employer refused to issue them a W2 even though required to do so under state and federal law.

Our investigator researched this business and discovered that the business was not reporting payroll to the state. We visited the location of the employer and found approximately 20 other employees on the premises. Our investigator interviewed the employees that were present and found that all were being paid in cash and all had been told state and federal taxes had been withheld properly. In reality, none had.

Appropriate enforcement action was taken against the business. Because the business had been doing this for years, a 100 percent penalty was assessed against this employer. This penalty was on top of the tax they had not remitted to the state. Unfortunately for the business, this additional cost could have been avoided simply by filing and paying payroll taxes properly.

In this particular case, these employees had no idea that their taxes were not being properly reported and paid. Ways employees could suspect that their employer might not be following the law include:

1) The employee is paid in cash;
2) The “pay stub” is handwritten; or
3) The employer refuses to issue W2s.

It is important that the employer properly reports and pays payroll taxes so in the event the employee is injured on the job, loses their job, has an issue with overtime, attempts to file personal income tax returns, or has to deal with any other labor related law, the employee is protected.

If you are an employer who is doing business in this manner, contact us for information about how to properly report so you can avoid significant penalties.

If you are an employee and find yourself in a situation similar to this employee, contact us like they did. We may be able to help.