Category: Archive

Issue: A company is experiencing financial difficulties and stops meeting its employment tax withholding obligations. Both the company’s president (who is also the owner) as well as the CFO are aware of the company’s failure to pay over withholding taxes to the IRS. Throughout this period, the company’s president has been addicted to cocaine and alcohol. The IRS eventually files suit against both the president and the CFO seeking payment of the unpaid taxes and imposes the 100% “responsible person” penalty under IRC §6672 on both individuals. Does the company president’s drug and alcohol addiction absolve him of liability for the 100% “responsible person” penalty?

Answer: The company president is still liable. In order to be liable for the penalty, the individual must be a “responsible person”—someone with significant control over an entity’s finances—and must willfully fail to pay over the taxes. Voluntary intoxication, including drug or alcohol addiction, may never serve as a defense to the “responsible person” penalty.

When this case was appealed to the U.S. Court of Appeals, the court rejected the president’s argument that his drug addiction prevented him from acting willfully when he failed to pay over the taxes. The court noted evidence suggesting that the president was aware of the company’s failure to pay over the taxes and that the president maintained ultimate authority over the company’s financial affairs during the course of his addiction. Factors that indicate significant control over finances include:

1. supervisory authority over an employer’s financial affairs,
2. authority to determine the order in which creditors are paid, and
3. control over payment of wages.

However, the CFO might be off the hook. He argued that despite the existence of corporate documents clearly giving him the authority to pay over the taxes, he had no actual authority to do so given the instructions he received from the company president to pay trade creditors before the employment taxes. The court agreed that, in theory, such a situation could exist, but the CFO would be required to prove that reality did not match the documentary evidence.

Cite: U.S. v. Landau, CA-2, 155 F.3d 93 (1998), cert. denied 119 S.Ct. 1803 (1999).

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

Issue: When payday arrives for one of your new employees, your payroll department hits the panic button. Court-ordered child support payments, student loan payments, and federal and state tax levies must all be deducted from Mr. Worker’s pay. Your payroll administrator asks, with so many entities jockeying for position for their portion of the employee’s pay, which has dibs on the dough?

Answer: Employers may face a situation in which an employee’s wages are being attached from more than one source. Because the various parties that want a part of the employee’s wages generally do not have knowledge of each other, it is up to the employer to determine which orders must be complied with first. Since federal and state limits exist on the amount of money that may be withheld involuntarily from an employee’s wages, an employer faced with multiple withholding orders against the same employee may not be able to withhold the full amount required by each order.

In what order should pay deductions be made?
In general, the following order should be followed when processing multiple withholding orders against the same employee:

• Tax levies—Federal tax levies should be satisfied before all other orders for deductions of pay, with the exception of child support orders received by the employer prior to the tax levy. (State law should be checked for the treatment of state tax levies.)

• Child support orders—Child support orders should be satisfied before garnishments and student loan collections, but generally do not take precedence over tax levies. Two exceptions to this rule exist. First, if the child support order was received by the employer prior to the tax levy, the child support order takes precedence. Second, with respect to a federal tax levy, the IRS may instruct the employer to satisfy all child support orders first, regardless of when the employer received the order.
  
  What happens if an employee has more than one child support order issued against him? State rules govern how the different orders must be satisfied. In general, the states provide that each order should be satisfied at least in part.

• Garnishments—Garnishments should be satisfied only after tax levies and child support orders have been satisfied.

• Student loan and other federal government agency garnishments—No official guidance exists on what priority to give student loan and other federal government agency garnishments. However, it is likely that tax levies and child support orders will take priority. Employers processing student loan and other federal agency garnishments should contact the issuing agency if questions regarding priority arise.

Cite: .15 U.S.C. §1673(b).

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

Sometimes we forget how helpful it can be to someone when we offer them advice. This funny little story will remind you that when you help someone by giving them advice, you are truly giving something of yourself.

While working on a sermon, a pastor heard a knock at his office door.

“Come in,” he invited. A contrite-looking man in threadbare clothes came in, pulling a large pig on a rope.

“Can I talk to you for a minute?” asked the man with his hat in his hand. The pastor showed him to a chair and the man sat down in it gingerly. The pig proceeded to sniff around the office. With one eye on the animal and one eye on the man, the pastor folded his hands on his desk and leaned forward, curious to hear the fellow’s story.

“What can I do for you?” asked the pastor.

“My family is hungry,” started the poor man. “So I stole this pig. But I feel that I have sinned. Would you please take it?”

“Certainly not,” said the pastor.

“Then what should I do with it?” asked the man.

“Give it back to the man you stole it from, of course!” the pastor explained.

“I offered it to him, but he refused to take it. Now what should I do?”

“In that case,” the pastor said, “It would be all right for you to keep it and feed your family.”

That seemed to settle things as far as the man was concerned. “Thank you for your help, sir,” he said. He walked out of the office, leading the pig on the rope behind him.

Later that afternoon the pastor returned home. When he arrived, he had a little surprise in store—somebody had stolen his prize pig.

SOURCE: Hamel Lutheran Jokes and Christian Humor, August 13, 1999.

Do you have an opinion you’d like to share with tens of thousands of other leaders in the work force management world? No need to keep it to yourself.

Your opinion column can be about something you’ve experienced or learned within your own organization. Or, it can be about an issue or trend in government, politics, society, culture, sports, economics or the media and how it affects business and the work force.

Normally, the opinion columns run in the neighborhood of 800 words.

E-mail Online Editor Todd Raphael any ideas you have for a column you’d like to write, or call him at (714) 751-1883, ext. 223 if you’d like to mull it over with him.

Before exiting for a one-month recess, Congress passed a 10-year $792 billion tax cut that contains a host of retirement incentives for employers and employees. The bill would allow employees to sock away more money in pre-tax accounts such as 401(k) plans and would permit older workers to contribute even more. In addition, the new rules would allow workers to contribute after-tax money to their 401(k) or 403(b) plan and would make rollovers between plans easier.

Will the bill become law?
Probably not in its present form. President Clinton has repeatedly threatened to veto any tax cut as large as the one Congress has passed. However, the President and congressional Democrats appear amenable to a smaller overall cut, somewhere in the vicinity of $300 billion over 10 years.

It remains to be seen whether Congress and the President can get together this fall. But the package just passed by Congress will serve as the blueprint for any final agreement that may be reached later in the year. So employers need to be aware of the possible changes on the table.

Higher pre-tax contributions.
The bill would gradually increase the maximum amounts that employees can contribute on a pre-tax basis to 401(k) plans and tax-sheltered 403(b) annuities. Presently, the limit is $10,000 per year. Congress would gradually increase this limit until it reaches $15,000 in 2005. The limit would then be adjusted for inflation. In addition, the maximum annual pre-tax contributions that could be made to a SIMPLE plan would gradually increased until the limit reaches $10,000 in 2004. This limit would also be adjusted for inflation. SIMPLE plans are geared to small employers.

Catch-up contributions for older workers.
The contribution limits under 401(k) plans, 403(b) annuities, SIMPLE plans, 457 plans, and IRAs would be increased for workers who are age 50 or older. These older workers would be able to contribute more. The amount of additional contributions permitted would rise gradually. By year 2005, older workers would be able to contribute 50% more than other employees to such plans.

After-tax 401(k) and 403(b) plans allowed.
Employers would be allowed to provide participants in 401(k) plans and 403(b) plans with the opportunity to contribute to these plans on an after-tax basis. Qualified distributions from such accounts would be tax-free to the employees, similar to the Roth IRA concept.

Easing rollover rules for qualified plans and IRAs.
With an increasingly mobile workforce, legislators are looking to make pensions more “portable,” so that workers can transfer more of their accrued benefits from job to job. Toward this end, Congress has changed the rules to allow rollovers of distributions between qualified plans, 403(b) annuities, and 457 plans. Also, the new rules would allow IRA distributions to be rolled over into a qualified plan, 403(b) annuity, or 457 plan. The 60-day period for making a valid rollover could be waived under certain circumstances, including cases of casualty, disaster, or other events beyond the reasonable control of the individual.

Cite: The text of relevant portions of the tax bill as passed by Congress are reproduced at 29,102 of the CCH PENSION PLAN GUIDE.

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

Scenario: An audit turns up a $500 cash shortage at the front desk of the hotel you work in. The only suspect is the front desk clerk. Should you make the clerk take a lie detector test, just to be sure, before you take action?

Answer: Absolutely not. The Employee Polygraph Protection Act (EPPA) contains a specific exemption for voluntary polygraphs in the event of a cash shortage or possible theft. But the problem with giving the polygraph is that it creates a new set of rights for the individual.

Under the EPPA:

• The individual being polygraphed must be advised of his or her right to refuse to take the polygraph or to terminate the exam at any time.

• You cannot fire an employee based on his refusal to take the polygraph or based only on its results.

• Therefore, if the hotel chooses to administer the polygraph, the employee can decline, and then contend that the reason for the termination was his refusal to submit to the exam. Even if the employee takes the polygraph, the hotel will be hard-pressed to take action without facing an EPPA claim unless the employee admits to the conduct.

Better Approach:
The solution is to establish detailed cash-handling procedures. If you’re faced with a shortage, use your internal investigation to establish that the employee had control over the money that was missing.

It’s generally difficult to “prove” an employee took the missing money. You can almost always establish, however, that the person failed to follow your cash-handling procedures. Therefore, the employee can be terminated for failing to handle cash in accordance with hotel policy.

Source: Hospitality Workforce Trends: A Monthly Newsletter on Employment Law and Employee Relations, published by M. Lee Smith Publishers. For more information call 800-274-6774.

Human Capital

Share the stress–add your own signs to the mix if you want.
10. You wake up in a panic. . . in the middle of an important CEO meeting.

9. You’re paranoid that the plant-watering crew are IRS agents in disguise.

8. You get up from your desk to do something, and then forget what it was.

7. No one in your office smiles. . . at you.

6. Antacids are included on your expense report.

5. You want to quit, but you’re addicted to the stress.

4. You chip a tooth biting on your pen.

3. Those funky-colored stress toys on your desk need retreading.

2. You’re considering adding an HRMS to your appointment book.

1. You answer every phone call with “Mommy?”

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Issue: In the workforce training you developed since last summer’s Supreme Court decisions in Burlington Industries, Inc. v. Ellerth, 118 S. Ct. 2257 (1998), and Faragher v. City of Boca Raton, 118 S. Ct. 2275 (1998), you emphasize that the company is vicariously liable for unlawful harassment by supervisors. You stress (1) the company is responsible for the acts of its supervisors and for preventing harassment and (2) employees are responsible for avoiding or limiting the harm from harassment. In your training, you attempt to explain that when there is no tangible employment action, the employer may be able to avoid liability or limit damages by establishing an affirmative defense that includes two necessary elements:

• the employer exercised reasonable care to prevent and correct promptly any harassing behavior, and
• the employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or otherwise to avoid harm.

You feel confident of the preventive measures you’ve implemented in developing and enforcing an antiharassment policy and complaint procedure. But supervisors’ questions about what to do if harassment is reported make it clear they don’t know what “immediate and appropriate corrective action” means.

Answer: “Immediate and appropriate corrective action” will ultimately depend on the particular factual circumstances and, in some cases, the nature of the employer’s workforce. However, here are some guidelines from the EEOC:

Effectiveness.
Remedial measures should be designed to stop the harassment, correct its effects on the employee, and ensure that the harassment does not recur. These remedial measures need not be those that the employee requests or prefers, as long as they are effective.

Discipline.
In determining discipline, keep in mind that the employer could be found liable if the harassment does not stop. At the same time, overly punitive measures may subject the employer to claims such as wrongful discharge and may simply be inappropriate. To balance these concerns, disciplinary measures should be proportional to the seriousness of the offense. If the harassment was minor, such as a small number of “off-color” remarks by an individual with no prior history of similar misconduct, then counseling and an oral warning might be all that is necessary. On the other hand, if the harassment was severe or persistent, suspension or discharge may be appropriate.

Impact on complainant.
Remedial measures should not adversely affect the complainant. Thus, for example, if it is necessary to separate the parties, then the harasser should be transferred (unless the complainant prefers otherwise). Remedial responses that penalize the complainant could constitute unlawful retaliation and are not effective in correcting the harassment. Remedial measures should be designed to put the employee in the position he or she would have been in had the misconduct not occurred.

Examples of measures to stop the harassment and ensure that it does not recur:

• oral or written warning or reprimand;
• transfer or reassignment;
• demotion;
• reduction of wages;
• suspension;
• discharge;
• training or counseling of harasser to ensure that he or she understands why the conduct violated the employer’s anti-harassment policy; and
• monitoring of harasser to ensure that harassment stops.

Examples of measures to correct the effects of the harassment:

• restoration of leave taken because of the harassment;
• expungement of negative evaluation(s) in employee’s personnel file that arose from the harassment;
• reinstatement;
• apology by the harasser;
• monitoring treatment of employee to ensure that he or she is not subjected to retaliation by the harasser or others in the workplace because of the complaint; and
• correction of any other harm caused by the harassment (e.g., compensation for losses).

Complaint procedure.
Instruct all supervisors and managers to address or report to appropriate officials complaints of harassment, regardless of whether they are officially designated to take complaints and regardless of whether a complaint was framed in a way that conforms to the organization’s particular complaint procedures. For example, if an employee files an EEOC charge alleging unlawful harassment, the employer should launch an internal investigation even if the employee did not complain to management through its internal complaint process.

Furthermore, due care requires management to correct harassment regardless of whether an employee files an internal complaint, if the conduct is clearly unwelcome. If there are areas in the workplace with graffiti containing racial or sexual epithets, management should eliminate the graffiti, not wait for an internal complaint.

Train.
Ensure that all supervisors and managers understand their responsibilities under the organization’s anti-harassment policy and complaint procedure. Periodic training can help achieve that result. Such training should explain the types of conduct that violate the employer’s anti-harassment policy; the seriousness of the policy; the responsibilities of supervisors and managers when they learn of alleged harassment; and the prohibition against retaliation.

An employer should keep track of its supervisors’ and managers’ conduct to make sure that they carry out their responsibilities under the organization’s anti-harassment program. For example, an employer could include such compliance in formal evaluations.

Screen.
Reasonable preventive measures include screening applicants for supervisory jobs to see if any have a record of engaging in harassment. If so, it may be necessary to reject a candidate on that basis or to take additional steps to prevent harassment by that individual.

Track.
Finally, keep records of all complaints of harassment. Without such records, the employer could be unaware of a pattern of harassment by the same individual. Such a pattern would be relevant to credibility assessments and disciplinary measures.

Cite: The information reproduced above is taken from the EEOC Employment Guidance: Vicarious Employer Liability for Unlawful Harassment by Supervisors, released by the EEOC on June 21, 1999.

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

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