Did you know that the cost of labor can be one of the largest expenses a small business can have? It’s second only to the cost of real estate, according to the U.S. Department of Labor. Depending upon the industry you’re in, labor costs can range from 10% to 30% – or more. For your small business, your labor costs can quickly eat up your earnings if they’re not monitored and adjusted accordingly.
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Whether you own a large or small business, every business generates documents that record your company’s daily transactions. These records are important because they provide you with documentation to support your bookkeeping entries. Whether or not your small business is ever audited, it’s a must that you maintain a complete and accurate audit trail to manage your operations, detect fraud, and ensure compliance with government regulations. (more…)
You never know when new legislation might be passed, turning your small business’s life upside down. Just when you think you have things figured out and your business is on the right track, the government can decide that you need to change the way you operate. Small business owners in New York are currently facing a scenario in which proposed legislation threatens to change the way they will be allowed to pay their employees. (more…)
Worker’s compensation fraud is “the fastest growing segment of insurance fraud,” according to the National Insurance Crime Bureau. One way, small business owners commit insurance fraud is by under-reporting payroll to avoid paying worker’s compensation premiums to their insurance carrier. If your small business is under-reporting payroll to save on premiums, you need to know that you’re playing with fire. If you’re caught, you could face financial penalties and jail time.
Last year, Sung Hyun Kim and Caroline Choi, CEOs of sewing companies Meriko Inc. and SF Apparel Inc. were arrested, along with their accountant Jae Kim, on suspicion of workers’ compensation insurance fraud. Beginning as early as 2006, they’re accused of underreporting $78 million to more than a half-dozen insurance carriers. The trio conspired to hide payroll to avoid paying workers’ compensation insurance premiums. They fabricated payroll records and paid employees under the table through an undisclosed bank account. Sung Hyun Kim faces up to 28 years in prison, Choi faces more than 15 years behind bars, and Jae Kim could get a 22-year prison term, according to the Los Angeles County District Attorney’s Office.
Employers can use a variety of “creative” methods to under-report payroll. Some common under-reporting methods used include:
- Misclassifying employees into “safer” jobs.
- Paying employees under the table.
- Hiring employees as independent contractors.
- Paying bonuses off the books.
- Paying employees on a non-wage basis, such as a reduction in rent or free meals.
- Setting up dummy companies to “hide” employees.
- Understating payroll to insurance companies.
- Fabricating phony payroll
Perhaps, business owners don’t realize the impact their dishonesty can have on their company, employees and other companies. Employees who are hurt on the job may not have workers’ compensation coverage to pay their medical bills. Or, in cases where there’s no worker’s compensation insurance, your small business may be considered “self insured,” which means as an employer, you must pay the employee’s medical bills and lost wages. If the injury is severe and the costs are high, you may be forced to go out of business.
The Real Cost of Payroll Fraud
Additionally, when you cheat the insurance companies out of the premiums they’re owed, this causes the rates to go up for everyone else. Businesses pass these premium increases on to their customers in the form of higher prices for goods and services. Therefore, fraud hurts everyone. So don’t do it! It’s not worth the risk.
Payroll fraud can be a costly issue for employers. By outsourcing your payroll services to a reputable external payroll provider, like The Payroll Department, you can help ensure your payroll information is secure and reviewed regularly for errors and other discrepancies. Contact Teresa Ray of The Payroll Department at (317) 852-2568 to learn how outsourcing your payroll can protect your company from fraud and give you peace of mind.
-Ariane of The Payroll Department blog team