Payroll Mistake = Bankruptcy

Yesterday I had a good call with my friend Chelsea, she manages one of the largest payroll companies in the world. NCH supports thousands of small business owners with S-Corps or LLCs taxed as an S-Corp. Certain business owners are required to take a small reasonable salary. The “salary” is paid out in the form of a W-2.

Chelsea explained that ADP is a lot more than just a payroll Company. She explained that a couple had opened a small coffee shop recently. They started as a husband-and-wife team and eventually grew, hiring two additional W-2 employees.

After months of operating, they realized one of the trusted employees was stealing from the company. Things like tablecloths, silverware, and staplers. Things that make you wonder why this person would be stealing these items. Wanting to do the right thing, they warned the employee to stop stealing.

As time passed, items continued to be missing and they had to terminate this W-2 employee for stealing. It seems like the right move as a business owner, right?

As it turns out, and an attempt to save money, they used a small do-it-yourself payroll service. I won’t name any names, but there are plenty of them out there.

This husband-and-wife team was then sued for wrongful termination! As it turns out, there was no sign posted, stating that employees could not steal from the company! After a $96,000 verdict was awarded to the wrongfully terminated employee, this husband-and-wife team is now going out of business.

I asked Chelsea, “How would this outcome have been different if they had been using ADP?“ Chelsea explained that if they would have been clients of ADP, they would’ve had an HR hotline to call and get guidance. ADP would’ve certainly known these rules and instructed the client to place assign in the restaurant, letting employees know they cannot steal from the company, and ensuring the couple was following the laws.

I wanted to share this with everyone as a reminder: Employment litigation can be devastating. If you have W-2 employees, there are crazy laws that must be followed.

Having a team of experts behind, you can mean the difference between success and failure.

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DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.