Payroll Question

[Jim-from-Ohio]

So I offer payroll for small to medium sized businesses and have seen it all almost as far as depositing taxes, 941s, workers comp, W-2s, etc.  But I just had a phone call from a bankruptcy attorney where she said she did some payroll under a corporate bankruptcy for one of her clients.  She would like me to make sure all the tax deposits are made and W-2s are filed.  

We are meeting Saturday so I don't have all the details yet but has anyone ever done anything like this, payroll under bankruptcy?  I asked her when she cut the checks and said July of 2024.  So it sounds like everything is late but is this like any other payroll or is there something else involved when doing payroll in bankruptcy? Thanks!

[BobKamman]

Is this a Chapter 11 with debtor in possession?  Probably not, they would just keep following the rules they already knew.  So maybe a Chapter 7 and your client is really the attorney for the bankruptcy trustee, who is not really a court employee and may not have had this situation before.  The procedures and filing requirements are the same, just another client, but be ready to explain the penalties and how to ask that they be abated.  

[Jim-from-Ohio]

Thanks Bob.. I just checked with attorney and she confirmed it is a Chapter 7.  So in ohio I would have applied for workers comp, (in ohio have to go through the state's system, no such thing as private workers comp in ohio) as well as state unemployment, federal unemployment, state and local withholdings. Do you think those all apply in a Chapter 7 payroll?

[qbteachmt]

"So it sounds like everything is late"

And will there be any money left to pay the liabilities at this time? I'm assuming the takehome was cashed out and she's not sitting on unissued checks. I've had this happen. I describe it as a "time bomb in your desk drawer, because the liability clocks started ticking on the pay date."

You're thinking they never even applied for worker comp? Or, you mean, apply the calculations?

I wound check all filing and payments for the year to the final paycheck filing requirement. It's not unusual for someone to only send in 941 quarterly, and you don't know if the prior quarter was paid and filed. FUTA 940 (and maybe SUI) are annual forms, and sometimes the amount is so small they fall under the Annual Payment, too, so was anything ever paid for 940, would be something else to find.

In my State, worker comp can be divisible, so I always need to find which plan the employer falls under, and the payroll reporting needs to include worker comp job codes (and we do not include OT, just base rates). I hope they can pay you...

[Jim-from-Ohio]

@qbteachmt can i ask you another question and I appreciate your time and input. so we are meeting saturday and she is bringing in paycheck details of what she paid the people.. Say the company in chapter 7 is called ABC Inc.  Do I need all the pre-Chapter 7 payroll to come up with YTD figures or is this segment, this Chapter 7 segment is done all by itself, that is stands on it's own?  I hope that makes sense. 

[qbteachmt]

Unfortunately, it's like peeling an onion.

The compliance issues are weekly, monthly, quarterly, and/or annual, for US payroll. If you are supposed to catch them up fully, you have due diligence for the calendar year, not the tax year. Technically, if that's not what you're hired to do, then you work with blinders, but I would make sure to note this limited scope.

Otherwise, the settlement should include a look at/for benefits, such as retirement matches, health premiums and policy notifications, etc. Ugh.

Let us know what you find.

[BobKamman]

So, you are working for the attorney who is working for the trustee, who is appointed by but not an employee of the bankruptcy court?  The trustee's real job is to collect money for the creditors.  Trustees are paid a flat fee plus a commission on what they can distribute.  They have a handbook that tells them what to do about taxes.  It's here -- see pages 38 et seq:

https://www.justice.gov/ust/page/file/762521/dl?inline 

[BobKamman]

And the first questions I would ask are, when do I get paid and how much?  See the part in that Handbook about employing accountants and submitting their fees for approval.  Maybe then ask who did their dirty work before they found you in the phone book, and why did that guy quit.  

[Jim-from-Ohio]

Attorney will be coming in in about an hour from now I will review what she has but I kind of gave her a heads up on the phone yesterday that I was not sure I can take this on (really meant not sure I want to take this on)

[qbteachmt]

"If you're gonna play the game, boy
You gotta learn to play it right

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run"

[Jim-from-Ohio]

I let the dealer deal the cards.. looked at the hand dealt, threw out two cards, picked up two, made sure there was enough in the jackpot to pay off.. My hand won, Now I can hold 'em