Firstly, over the last month, the owner has not run payroll. Instead he has given us "advance" checks. He keeps telling me he's going to run payroll but doesn't. Is this legal? If not, what can be done about it? And either way, will he have to run payroll at some point before the company completely shuts or could I get stuck with paying taxes on what I received? Mind you, I'm not getting my full paycheck by the company giving only advances.
A: By not running the payroll, the employer avoids paying workers comp, unemployment insurance contributions, SDI, Social Security, Medicare, etc. And, it means that the employer is not withholding employment taxes. All of which saves the employer money, but which also leaves you with an unpaid tax liability. Calling your earnings an advance, doesn't change the essential character. The money is wages/salary, and you are obligated to pay taxes. So, don't spend all of the money, because you will have to send a 1040-ES to Uncle Sam and a 540-ES to the Franchise Tax Board, with your income tax liability. You can calculate that liability by using a paycheck calculator, such as is found at paycheckcity.com.
Once you do this, you're off the hook with the government. Your employer will be in some seriously hot water, because failing to remit employment taxes carries a 100% penalty, and the responsible persons in the busines can be held personally liable for the underpayment and penalties.
Secondly, he hired lawyer(s) to shut the place down. Originally, he told us we'd be paid our accrued vacation time and contracted bonuses at some point before the company closes, but now since the lawyers have come into the picture, we're told we only get what's been accrued over the last 90 days on vacation. The rest and the bonuses are gone. Is this legal?
A: Bonuses, to the extent that they have not been earned, are discretionary. If you already earned the bonuses, then they are wages/salary, just like anything else -- as is earned vacation. It cannot be forfeit by the employee.
However, if the business were to file bankruptcy, then your earnings, regardless of how denominated, is given a priority claim over other unsecured creditors at $12,475 during the 180 days prior to the employer's filing of the bankruptcy petition. Any other earnings, while still owed to you, are subject to your standing in line with any other unsecured creditor -- which probably means you'll see only a very small percentage, if any, of anything greater than the aforementioned amount.
Thirdly, we continue to operate and make money. If I were to leave, knowing he's under some kind of insolvency, would he (or the lawyers handling the shutdown) be required to run past payroll for me AND fully pay out my current pay AND overtime? Or could I end up as another creditor trying to get paid if I decide to up and go?
A: See above.
Lastly, is there any kind of cap to what the employer has to pay the current employees on their final paycheck? Meaning, if I stayed, trusting I'm going to get paid for the time I put in, can the company hand me a final paycheck that's not a full paycheck and/or not pay me for overtime?
A: See above.
Note: if the business' assets are acquired by a larger business, then under the doctrine of successor liability, the new owner would be liable for your pay and for the unpaid taxes, etc. I wouldn't bet on this acquisition occurring, but if it were to happen, and even if it does not, if you're not getting paid what you're owed on time, then you can file a wage claim with the Division of Labor Standards Enforcement (DLSE), and your employer will have a new problem to deal with, because as soon as the government gets wind that employment taxes are not being timely remitted, the IRS and FTB will be coming through the doors to try and collect.
Obviously, if you're making money, then there is an incentive to simply take the advances, assuming they're sufficient. Just be sure you're setting aside and paying your tax liability on that income -- Otherwise, you will have a nasty surprise come next April 15.
Hope this helps.
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