Accountants: Is it illegal to be on a company payroll if you dont work there?

[DaTT]

My wife's bosses daughter is on his companies payroll and doesn't work there. Doesn't even live in the same Province. He does own the company, but my wife said their accountant says it's illegal. I don't see why if it is illegal. What makes it against the law?

Be aware. Six year-old thread revived by new member.
admin allisolm

 

[KK]

does she make any wages?

 

[DaTT]

Yes, she is paid $100/week

 

[KK]

I would think the company could pay anyone it wants, even if that person doesn't do anything. Heck look at ATOT, half the folks here don't do nothing but browse the web 8 hours a day.

Also why would it be illegal?

 

[DaTT]

I would think the company could pay anyone it wants, even if that person doesn't do anything. Heck look at ATOT, half the folks here don't do nothing but browse the web 8 hours a day.

Also why would it be illegal?

This is my question

 

[KK]

http://askville.amazon.com/legal-co...nd-payroll/AnswerViewer.do?requestId=17577825

Maybe that's somewhat close to your scenerio.

 

[SlitheryDee]

Its possible that someone could be on the payroll whose only job is to advise the boss over the phone. Probably not what's going on here, but that seems like it could be a legitimate job anyway.

 

[XX55XX]

Is he paying FICA on her wages?

Doubt the IRS would care anyway. The sums involved are too trivial.

 

[RocksteadyDotNet]

Definitely not illegal. Every small business in the world does this.

Tax breaks yo.

 

[walrus]

Sounds like he just wants to get her eligible for health insurance

 

[DaTT]

Sounds like he just wants to get her eligible for health insurance

Probably this.

 

[LTC8K6]

She'd already have health insurance in Canuckland...

 

[Zenmervolt]

My wife's bosses daughter is on his companies payroll and doesn't work there. Doesn't even live in the same Province. He does own the company, but my wife said their accountant says it's illegal. I don't see why if it is illegal. What makes it against the law?

While I cannot comment on Canadian law, under US law there are way too many variables for you to get a decent answer.

Things that might be relevant:

1. How is the company structured (LLC, LLLC, LLP, LLLP, LP, C-Corp, S-Corp., sole proprietorship?)
2. If a corporation, is it public or private?
3. Does local law permit things like this to be addressed in the articles of incorporation or the shareholder agreement?
4. If #3 is yes, then what do those documents say about it?
5. If #3 is no, what does applicable law say is the baseline?
6. Are the wages being taxed appropriately?
7. If the company is private and a corporation, is the boss the sole shareholder?

There's way too much going on here to be able to say one way or the other without knowing more.


ZV

 

[Mike Gayner]

I'm an accountant and this is absolutely 100% illegal here in New Zealand. Moreover there's a massive body of case law around this because so many small business owners have tried this against their accountant's advice.

The main issue here is the company getting an expense claim on wages which are non-bona fide. Many business owners have tried to lower their tax burden by paying non-commercial salaries to children, spouses etc. From a tax perspective, at least here in NZ, this is unambiguously illegal.

It can also be illegal for other reasons outside accounting/tax law - you need to ask why the payment is being made. If the recipient is entitled to some kind of tax deduction/credit/benefit by virtue of their ostensible employment then this may pose a legal risk.

The upshot here is that payments, here in NZ at least, need to have a commercial purpose or you risk being prosecuted for tax avoidance or other offences.

 

[Mike Gayner]

Definitely not illegal. Every small business in the world does this.

Tax breaks yo.

I know for a fact that it's illegal where you're from in Australia.

 

[RocksteadyDotNet]

I know for a fact that it's illegal where you're from in Australia.

Fair enough mate.

I still dont understand how it's illegal, or how it would ever be enforced.

The government cant tell you want you can, or cannot, employ people to do for your business. Within the realms of law, obviously.

Just say they're employed as PR reps, and their job is to tell the occasional person about the business.

Say they're employed as a thinktank, and are obligated to report and great businesses ideas they think of.

The amount of non-existance stuff you could pay people to do is endless.

 

[Mike Gayner]

Fair enough mate.

I still dont understand how it's illegal, or how it would ever be enforced.

The government cant tell you want you can, or cannot, employ people to do for your business. Within the realms of law, obviously.

Just say they're employed as PR reps, and their job is to tell the occasional person about the business.

Say they're employed as a thinktank, and are obligated to report and great businesses ideas they think of.

The amount of non-existance stuff you could pay people to do is endless.

You really don't know how this could be enforced? Man, you know nothing of the tenacity of tax collectors or the ability of courts to see right through bullshit. You employ them to report to the Comapny? OK, produce the reports. They're a PR rep? OK, let's see receipts for the flights, entertainment meals, etc. You will have to justify their commercial nexus to the business, and the courts will absolutely demolish you if you can't do this.

 

[dmcowen674]

Is it illegal to be on a company payroll if you dont work there?

If it was every single Politician would be in jail.

 

[iGas]

It is illegal here in Canada, but it is hard for the government to come after such trivial amount.

 

[RocksteadyDotNet]

You really don't know how this could be enforced? Man, you know nothing of the tenacity of tax collectors or the ability of courts to see right through bullshit. You employ them to report to the Comapny? OK, produce the reports. They're a PR rep? OK, let's see receipts for the flights, entertainment meals, etc. You will have to justify their commercial nexus to the business, and the courts will absolutely demolish you if you can't do this.

I think we might be talking about different things.

I think you're talking about business expences or some shit. I'm talking exclusively about paying someone a salary to do nothing. Usually paying a family member the max tax-free salary. Which here is 6k.

I can just say I'm paying my kid 6k a year, to wash my car every month.

Or once a year. Or whatever.

I dont see how the gov can tell me what I must pay people to do certain shit. If I want to pay some guy 500k a year to follow me around laughing at my jokes, how can is that tax fraud?

 

[edro]

Sounds like a simple way to increase your company deductions.
Wages are deductible I assume.

 

[XX55XX]

Sounds like a simple way to increase your company deductions.
Wages are deductible I assume.

I believe they are, under the category of business expenses.

 

[sourceninja]

I think we might be talking about different things.

I think you're talking about business expences or some shit. I'm talking exclusively about paying someone a salary to do nothing. Usually paying a family member the max tax-free salary. Which here is 6k.

I can just say I'm paying my kid 6k a year, to wash my car every month.

Or once a year. Or whatever.

I dont see how the gov can tell me what I must pay people to do certain shit. If I want to pay some guy 500k a year to follow me around laughing at my jokes, how can is that tax fraud?

Exactly, I would employ them to go out drinking with me on weekends I want to go out drinking.

 

[Greenman]

I'm an accountant and this is absolutely 100% illegal here in New Zealand. Moreover there's a massive body of case law around this because so many small business owners have tried this against their accountant's advice.

The main issue here is the company getting an expense claim on wages which are non-bona fide. Many business owners have tried to lower their tax burden by paying non-commercial salaries to children, spouses etc. From a tax perspective, at least here in NZ, this is unambiguously illegal.

It can also be illegal for other reasons outside accounting/tax law - you need to ask why the payment is being made. If the recipient is entitled to some kind of tax deduction/credit/benefit by virtue of their ostensible employment then this may pose a legal risk.

The upshot here is that payments, here in NZ at least, need to have a commercial purpose or you risk being prosecuted for tax avoidance or other offences.

That's an amazingly draconian law.

 

[Zenmervolt]

Sounds like a simple way to increase your company deductions.
Wages are deductible I assume.

A company does not pay tax on wages paid out (aside from payroll taxes for SS and Medicare), so it is a deduction (at least in the US) in a manner of speaking. However, a deduction is not a 1:1 tax break. All they do is reduce the company's net income. In the US that means that a company only sees, at most, a tax reduction of $0.35 for every $1.00 of wages paid out. Paying money out in wages to reduce the company's tax load just doesn't make a lot of fiscal sense because you pay more in wages than you save in taxes.

ZV