Hi,
I have been employed by a small shop in New Jersey for the past 4 years. The entire time, all employees were full time hourly employees who punched a time clock every day. We were paid with payroll company checks (ADP). All our deductions for Fed Tx, State Tx, FICA, UI, Med, IRA, etc., were recorded on our pay stubs. This was the case for Jan. & Feb. 08 as well.

In March 08, my employer stopped using the ADP payroll company, and started paying us with his own company checking account. He did not provide us with paystubs, despite repeated requests by several of us employees. The amount these checks were written for, was the same net amount we were paid on the previous ADP checks. Obviously, deductions were withheld.

In July 08, the company went back to using the ADP payroll company, and we were once again supplied with pay stubs showing our deductions. The recorded year to date gross earnings however, were not correct. The earnings from the 4 month period were not added in. Whenever we would ask our employer about this, his response was "yeah I know, I have to have them updated". He never did.

In Nov. 08, 2 anonymous phone calls were made by us employees to the Department of Labor Wage & Hour Compliance. They came in and "investigated". I recently called and spoke with a supervisor. I was told the company was fined for not paying us on our scheduled pay day. When I asked about the missing pay stubs, I was told they were only shown ADP checks.

Our employment has now ended due to closing of the business. I applied for unemployment and found out that I am not entitled to the maximum benefit. Those 4 months of wages were never reported. For 4 months, he withheld deductions, paid us net pay, never gave us stubs, never reported the earnings, and didn't pay in the withheld deductions.

I recently called my former employer about this, and was told "those checks are different". "I'm sending everyone a 1099 for that".
These are earnings that I already technically paid Taxes, SS, UI, since we were only paid our net amount.
There is approximately $20,000.00 "missing" from my year to date earnings for 2008.

I filed a formal complaint to Wage & Hour Compliance, and an appeal to N.J. Unemployment. Waiting to hear.

My question is............
Can he do this legally and get away with it?
If I do recieve a 1099, am I forced to file that way?
Should I notify the IRS as well?

Thanks in advance,
62fender

Companies under high financial stress, unfortunately, often have difficulty paying their withholdings to the government. This appears to be the case; if so, then you will have to pay both income and self-employment taxes on your 1099 earnings as if they were gross pay.

Can he do this legally and get away with it? Not likely. This is a case in which you may wish to seek professional legal and tax counsel.

In Canada what he did was fraud. He told you he was remitting taxes and he withheld them from his employees but he diverted the withheld amounts for his own use. If he's a corporation, he would not be immune by having his corporation declare bankruptcy. He would be personally liable to his employees.

I don't know how that's viewed in the U.S.. You could call your local prosecutor's office (In Canada that's Crown Counsel) and see if it is fraud there too.

Even if not, you employees could get together for a class action suit.

But first sniff around and see if you guys can find out if he has any personal assets.

Thank you for the quick replies.

So, if a company decides they just don't "feel" like paying in a few months worth of deductions they already withheld from your hourly pay check, it gets dumped back on the employee who is now responsible to pay the taxes a 2nd time?

Seems like it should be considered fraud here in the U.S. as well.

I guess I will have to seek professional legal and tax council as sugguested. What about notifying the IRS? Is that a bad idea?

Thank you both once again,
62fender

Report this to the IRS? Here in Britain reporting it to the Revenue would be very next thing we'd do! Why? Because the man has committed false accounting,making false claims, which must be of interest to the Revenue [IRS].He has said that he is paying $x to an employee,after deducting a sum as tax and then he's not accounting for that sum. And the tax authorities have been misled and you have suffered, up to now, because of it.

The IRS ought to know, in their interest and yours.They'd like to know what the employer has done with any money !