A hefty price to pay when an employer cheats

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As it is Labour Day on Monday, it is fitting to write this weekend regarding work as it relates to employer and employee roles, respect and benefits, or the lack thereof.

Bermuda is a unique jurisdiction in many ways. Don’t we know it!

It is expensive, financially sophisticated, quarrelsomely tiring, politically encumbered, community-commitment conscious, beautifully scenic, and populated by independent survival-minded incredibly generous people.

Our Bermuda forebears and the futuristic-minded leaders of today enacted employment legislation to define employee positions, rights, and future security that far surpass much larger countries — the United States comes to mind first. The law mandates, in proscribed fashion, that employers contribute to:

• Health insurance

• Defined contribution pensions

• Old Age Contributory pensions

• Payroll tax, along with other items, not covered today.

The employer/employee relationship is a serious two-way street. Each individual is codependent upon the other in a bond of trust in order to succeed personally, and corporately. If either person undermines the business relationship, neither will benefit financially in the long run.

In an ideal world:

• Employees should respect what great employers have accomplished, a successful business and an optimum working environment for you to also succeed. It is your absolute employee duty to show loyalty, good work ethics and contribute your skills unequivocally to this continued success. Your job and your future depends upon it.

• Employers should treat all employees, from the lowest position to the highest, with respect, personally and financially with position-appropriate employee benefits and promotional rewards for increased business. In return, that mutual respect accompanies the right to ask for loyalty to the firm and good work ethics. A large component of business success depends on responsible committed employees, who may represent the firm’s image in the global marketplace.

However, in the real world, not every individual operates from positions of integrity. I am talking about employer and employee theft.

Employers stealing from employees is fraud. It is robbery, just as if your house was invaded. Payroll fraud can be perpetrated in a number of ways, including paying employees in cash, filing false payroll tax returns or simply ignoring the filing process and never depositing the employee withholdings.

What does such a payroll financial loss mean to an employee?

Trust in the employer is destroyed. Financially, it really hurts the individual — healthcare denied, pensions depleted.

Please see the illustrative chart accompanying this article, which shows wage deductions of a hypothetical single person in Bermuda.

Are you surprised at this number — $1,067?

Yes, the total amount deducted from your paycheque each month represents a 21 per cent payroll hit to you. Now add in the amount required by law that your employer has to match: pensions, payroll tax and health insurance, that is $868 for a total of $1,935, a significant sum each month to keep you insured, saving for retirement and eligible for social services.

Now check the full year figure of $23,220 per person, with more than $9,000 a year stolen from your personal future. We cannot even calculate the loss in long-term investment appreciation in your pension assets.

This is your money. These are the consequences of losing your payroll benefit contributions. Short answer, it is your responsibility to act if you think your benefit tank is close to empty.

However, anonymous reader feedback indicates that employees find it terribly difficult to inform on a disreputable employer. They are terrified of losing their jobs and even more concerned that their whistle-blowing will prevent them from finding a future job; so they elect to remain silent. We all know how word travels even when considered confidential, Bermuda being such a small close community.

And quite frankly, up until now, the punishment for such crimes has been a joke.

As an example, here is a composite case from years ago where a local employer stiffed his crew, and was given a $250 fine. Flagrantly stealing from not only loyal employees and our public purse was a means to keep the money. The excuse was that he had a lot of bills and “got a little short”. This outrageous conduct should never be tolerated. The legal action should have been to put a lien on his house, car, and company, and freeze his bank accounts, cancel his credit cards. Garnish his salary. Shore up our legislation for crimes against public trust funds.

In the US, Canada and the UK, anyone that abuses public trust funds is punished quickly and with draconian actions. Firstly they have their wages garnished and bank accounts frozen less than three months after the first delinquency. Then the defendant’s property is attached and often is sold. Declaring bankruptcy will not discharge public trust debts — they follow the debtor to their grave. The final ignominy is that the defendant may find themselves wearing those stylish orange jumpsuits.

Other countries taxing authorities move quickly because the collateral damage hits everyone’s pockets with increased tax bills as governments are duty-bound to reimburse the social service agencies for the missing funds.

In Bermuda, the employee victim is cut off at the knees. At last research, if you are shorted on your pensions and health insurance, government cannot afford to reimburse your personal accounts. Plus, government has to absorb the payroll tax loss with increased levies on all businesses, meaning that ethical employers ultimately pay more than their fair share.

The ethical, responsible employer is also disadvantaged since the delinquent-fraud employer can undercut bids on jobs because their overhead is lower, due in part to illegally obtained loans from employees and a readily available cash float.

It follows that those who short the payroll system also avoid other obligations such as inadequate or no employee health insurance and little or no workers’ compensation and general liability insurance. There is also property tax defaults, skimping on materials, poor repair jobs using inferior product components, mediocre or poor professional service, inadequate or no job safety measures, and so on.

Stealing transcends all economic, social, ethnic or cultural boundaries. Dishearteningly, honest, everyday working people are the real losers; many may never recoup such losses. Older individuals with employer-shorted retirement assets may quickly exhaust resources only to suffer the humiliation of needing financial assistance.

Next week, in the concluding part of this article, I will look at employee theft. Just as there are fraudster employers, there are employees that steal. You will find out the many ways this happens and learn of some composite cases.

Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Pondstraddler Life, financial perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: martha@pondstraddler.com

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Published Sep 2, 2017 at 8:00 am (Updated Sep 1, 2017 at 11:42 pm)

A hefty price to pay when an employer cheats

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