Recently, I came across an article on a major clothing company highlighting a payroll hiccup during which the employees went temporarily unpaid. From the sounds of it, this company has been facing money problems for quite some time, ultimately filing for bankruptcy protection in October 2015. The company chalked up the problem to a procedural error by a global banking and financial services company, specifically stating that its money woes had nothing to do with it.
Whether the company’s line is true is not the point. Let’s assume for a moment the worst, that the payroll problem was related to the finances. Then, let’s take a moment to applaud them for making the responsible decision to hold the net payroll, temporarily, until all of the payrolls related obligations could be met.
A company’s ability to fulfill its payroll tax obligations has a direct impact on the company, the owner, investors and the employees. It affects the company’s very existence. The responsibility to collect and remit payroll taxes is statutory, required by law. The law states that a company has the burden to collect and remit payroll taxes from its employees when the employees are paid. Therefore, if payroll is delayed so is the obligation to remit the tax-related aspects of the payroll.
It goes without saying, but running a company with employees carries a host of responsibilities. After all, a company’s employees rely on it to provide for their general well-being. But, to a business owner, the importance of trust taxes, specifically payroll, cannot be overstated. Therefore, when beginning a new representation case, it is critical to introduce an educational component to the work. It’s imperative for clients to understand how to make good decisions in the face of financial distress. We understand that it’s certainly not easy to have a conversation with employees about a payroll being held. After all, those people are likely counting on it because of obligations of their own. Nonetheless, this can be the correct decision in some cases.
Holding a payroll is not the only answer and in some cases can be the wrong answer to a tough spot. But compared with the fallout from missing a payroll tax deposit, such as an IRS levy, it can actually prevent a bad situation from getting much worse. Dealing with IRS Collections is about ensuring that a company facing duress survives for everyone involved over the long term. The questions about what to do and when make it vital to have a qualified and competent professional to lean on.
If you are a business owner and find yourself facing a payroll problem, make it a priority to give us a call today. The longer you wait, the more complicated and difficult your situation can become. If you happen to be a tax professional with a client who could use our assistance, either contact us directly or fill out our client referral form, here.