Tax Attorney Offers Advice to Business Owners to Avoid Payroll Firm Problems

Nelson Toner of Bernstein, Shur warns businesses to take more active role in hiring, monitoring payroll firms

PORTLAND, Maine - Business owners need to be more diligent in hiring and monitoring payroll firms to avoid potentially dire financial consequences, advises a well-known Maine tax attorney.

Nelson Toner of Bernstein, Shur, Sawyer & Nelson said a valuable lesson should be taken from the recent Saco payroll firm case in which Harmon-Baert Associates allegedly failed to pay at least $1.1 million in payroll taxes for 34 unsuspecting clients.

The clients believed that Harmon-Baert was paying their payroll taxes. Instead, payments allegedly were not made, and now the clients by law are on the hook for the money owed to the Internal Revenue Service - money already paid once to the payroll firm.

"The simple truth is that if your payroll company is cheating you and not paying the taxes, you're still liable," Toner said. "This case serves as a good example of why business owners need to pay closer attention to their payroll companies and the actions these payroll companies are taking for their customers."

Business owners typically hire payroll firms to handle weekly paychecks and make withholding, Social Security and unemployment tax payments. Toner urged business owners to conduct a thorough review before hiring a payroll firm, asking for references and making sure they are registered with the state and bonded to cover any potential liability.

And once a payroll firm is hired, business owners need to take steps to be able to verify that tax payments are getting made. That means carefully reviewing documents provided by the payroll firm and notices from state and federal tax officials.

Most payroll firms will get a power-of-attorney release from clients, allowing the firm to file forms and make tax payments on the client's behalf. But, Toner said, the client company should make sure that any notices, particularly those from tax officials, are sent both to the payroll firm and the client's offices.

If no notices are received by the client, he said, questions should be asked immediately. Toner also advised business owners not to be overly forgiving if problems arise.

"Unless you can prove to yourself that a problem was an innocent mistake, I'd switch payroll firms," Toner said. "At the end of the day, you have the ultimate financial responsibility."

One way firms can maintain more control is by hiring a payroll firm to make all the calculations and prepare forms, and then make the actual payments themselves, he said.

The aim is to avoid the situation that the clients of the Saco payroll firm now find themselves in. The companies have little recourse, other than working with tax authorities to abate penalty and interest charges.

They also might consider other legal remedies, Toner said. In 1996, when Mainely Payroll in Augusta failed to pay taxes for its clients, 33 of them sued Key Bank, which handled Mainely Payroll's accounts. The case settled for an undisclosed sum before trial, said Jeffrey Thaler, another Bernstein, Shur, Sawyer & Nelson lawyer who represented the clients in the suit.

"Small businesses have a hard enough time these days, something like this can be devastating," Toner said. "It just behooves anyone who uses a payroll firm to be vigilant and make sure everything remains on the up and up."

ABOUT BSSN

Bernstein, Shur, Sawyer & Nelson is one of northern New England's largest law firms with more than 70 attorneys in offices in Portland and Augusta, Maine and Manchester, New Hampshire. The firm provides legal services in all major subject areas, including corporate and commercial law, litigation and trials, municipal and governmental affairs, education law, construction law, employment law and tax and estate planning. Bernstein, Shur also has an active practice in bankruptcy, health law, environmental law, technology and commerce, legislative law, intellectual property, public utilities and other regulated industries. For more information, visit the Bernstein, Shur web site at www.bssn.com.

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