Do you remember when you got your first credit card? You probably swore to yourself that you would use it no more than a couple of times a month to give your credit score a boost. Of course it starts out that way, and then you find yourself swiping for an extra meal, a new pair of shoes or maybe to cover your light bill. Before you knew it, you’d racked up enough debt to keep yourself making payments for years to come. How did that happen so quickly? When did your intention change from building credit to borrowing money? It’s extremely easy to fall into this destructive habit, not only for people, but also for businesses.
On June 30, 2014, in Atlanta, Georgia, Paulette Bryant, of Stockbridge, was sentenced to 36 months in prison, one year of supervised release and ordered to pay restitution of $2,914,931. Bryant plead guilty to obstructing and impeding the IRS’s collection of payroll taxes. According to court documents, Bryant owned and operated a temporary employment staffing business in Georgia.
This type of thing happens far too often. Business owners either have a lack of knowledge or discipline when it comes to payroll taxes. Employers are responsible for collecting and remitting these payroll taxes for themselves and their employees. It’s a pretty basic concept. However, some employers tend to hang on to the payroll taxes and use it as a way to increase cash flow whether or not they are aware of their actions.
The problem with Staffing companies doing this is the HUGE volume of payroll that is processed within a Staffing company. Even a small staffing company will be responsible for remitting $100,000+ in payroll taxes in a single year. The problem comes when a Staffing company has borrowed sporadically throughout the year and then it comes time to pay a huge lump sum for what they owe. Who actually has $100,000 cash on hand at any given time? This is how people like Paulette Bryant get themselves in trouble with the IRS.
Many factors contribute to this sort of thing whether it’s lack of knowledge, lack of discipline, greed or all of the above. Though, what exactly pushes a Staffing Company to feel the need to borrow money, especially if they are already making a profit? Usually, it is an issue of cash flow. The money is there, just not when they need it. So why not borrow from the “extra money” you have in your account, right? Herein lies the issue that gets Staffing Companies in trouble with the IRS.
What, then, can a Staffing Company do to get through the times in between payroll and collecting on invoices?
Banks, factors, payroll funding companies and your own personal savings can only go so far in providing cash flow to run your day to day operations.
Here are a few effective tips for managing cash flow issues and eliminate the need to borrow from Payroll taxes:
Make it clear to yourself that payroll tax trust money does not belong to you, and you need to get it out of your hand (bank account) as soon as possible.
- Use a Professional Employer Organization (PEO) or other professional payroll service who will make the deposit for you
- Use Accounting Software to Segregate Payroll Taxes
- Track Every Transaction and Payment
- Find a Pay as you go Workers’ Compensation Program
- Separate Personal and Business Finances
- De-clutter Your Desk and Keep Yourself Organized
- Review Your Records of Payments Frequently
The first tip is #1 for a reason. If you don’t acknowledge that the money is not yours to use, the borrowing will never stop.
Feel free to contact me with any questions on Payroll Taxes or Cash-flow management Strategies!