The Responsibility and Protection of Employee Benefits: The elderly gentleman limps quietly into office where as usual, there is a bit of a line. He is there to inquire as to his final monthly benefit payment derived from his career contributions to the Contributory Pension account.He hasn’t been feeling well lately, just about to go 65. He really had hoped to work longer and could have given his excellent employee track record, always on time, always reliable. It is finally his turn to meet with a government benefits administrator. His contribution record is revealed, $410 per month. The low number is stunning. This cannot be correct, after all the years he worked — through his entire adult life. Where is the rest of the money?We know the answer, of course. More than one of his previous employers never made the withheld (or the employer share of) contributions to his contributory pension account. His hard earned money — stolen — and too late to be recouped, those businesses (and unscrupulous owners) long gone. He trusted his bosses. How could they do this?Sound familiar? Even if it doesn’t, one case of payroll fraud like this, is one case too many.Payroll theft fraud is perpetrated on employees in a number of ways, some severely blatant, others cleverly subtle: pyramiding, treating employees as leased or subcontracted, paying employees in non-recorded cash transactions, filing false payroll tax returns or wilfully ignoring the whole reporting /depositing process.Pyramiding of employment taxes is a fraudulent practice where a business withholds taxes, pension benefits, health insurance deductions, and related benefits from its employee’s paychecks, but intentionally fails to remit the money to taxing authorities, health insurers and pension providers.The negligent business owner then leaches out all remaining profits from the business, then files for bankruptcy, discharging all liabilities in the process. Leaving the prior business wreckage behind, devious individuals start a new business under a different name, beginning a new employee scam all over again.Actual employees treated as if subcontractors. In another twist, employers treat employees as if they are self employed, paying them a bit more in gross pay.On the surface, this presents as a great deal — higher pay, less deductions, more take home cash. In reality, the individuals are not subcontractors. Consequently, payments are not made on their behalf (for the future) by anyone.Ignorance of the law is no excuse. Deliberate ignorance is fraud. Employers may plead ignorance of the payroll filing process as the excuse used for Filing False Payroll Tax Returns or completely missing employee contribution deposit deadlines. Misunderstanding of various sets of complex rules and regulations can happen; however, blatant and consistent misfilings raise “red flags” and a monitoring system should be implemented immediately.Tracking employer payroll responsibilities. In the United States, for instance, US Internal Revenue Service and State Revenue Agencies have harnessed the power of electronics for quicker, efficient tracking of payroll tax payments.Employers falling one month behind get hit with a large fine; two or more months behind, the Agency moves to freeze business and personal accounts and garnish assets. In some cases, any responsible person — the book-keeper, the office manager, even a director on a corporate board — working (or not) in a business will be sought for payroll tax restitution regardless of whether they actually own the company.Recent government statistics released here in Bermuda indicate that millions of dollars are still owed in payroll taxes, pension contributions and health insurance payments by negligent business owners. This situations causes unjust hardship to honest responsible employers as government is ultimately forced to raise levies on all businesses to compensate for the shortfall.Unfair competitive advantage. It almost always follows that those employers who short the payroll system also commit theft in other damaging ways: inadequate or no employee health insurance, little or no workers' compensation and general liability insurance, property tax defaults, skimping on materials, poor repair jobs using inferior product components, mediocre or poor professional service, inadequate compliance procedures, inadequate or no job safety measures, and so on.The “operating by the book” employer is placed at a real competitive disadvantage when bidding up against a crooked employer. The benefits fraudster can afford to undercut job contracts because overhead is lower, due to illegal obtained interest free loans and a readily available cash float taken directly from their employees.Regrettably, these stories abound. Cheating knows no economic, social, ethnic or cultural boundaries. It is sad and disheartening to see this kind of theft perpetrated on honest, everyday working people. They are the real losers; many of them will never earn the salary their employers command, nor live their lifestyle. When employees place their absolute trust in their employer, assuming he/she will do the right thing, and they do not, the employee feels powerless.What can you as an Employee do?Be responsible. Pay attention. Your responsibility is to know whether your payroll tax, health insurance, and pensions benefits are deposited and every month. Whether the ultimate fine to your employer is the cost of an expensive dinner for two ($250, yes that was one absolutely outrageously low fine assessed to one Bermuda business owner) or your pension benefits were used to fund the voyage of a luxury yacht, once the cash is gone, retrieval and retribution is almost impossible. Even when a negligent business (and owner) is placed under legal garnishment, the rest of the group, legitimate ethical employers and employees alike receive the ultimate indignity of having to pay again and again for the perpetrator’s prosecution and perhaps, subsequent incarceration.Conscientious employers who handle their obligations seriously and diligently need assurances that the tax system will be equitable and that tax evaders will be prosecuted appropriately.Truly, aren’t all working people and business owners of integrity worth at least that much assurance?Voluntary compliance remains the cornerstone of our tax system. Not only does noncompliance with tax laws threaten the stability of our government revenue collection process, but these offences hurt the economy, and our whole society.The opinions in this column are the author’s alone and are not endorsed by or authorised any organisation.Martha Harris Myron CPA PFS CFP (USA) TEP is Director of Tax Services at Patterson Partners Ltd and a professional member of the American Citizens Abroad Tax Advisory Council. http://www.aca.ch Patterson Partners Ltd. provides of integrated cross-border tax, estate, investment advisory and related strategic planning services through entities in Bermuda and the United States. For additional information, please contact mmyron@patterson-partners.com or call 296 3528 http://www.patterson-partners.com