It might not just be IRS that comes knocking if you slack off on your payroll tax withholding. A recent court case indicates the U.S. Equal Employment Opportunity Commission (EEOC) can also come after employers for failing to pay their share.
While resolving an EEOC sex discrimination lawsuit against the Detroit-headquartered Sherwood Food Distributors LLC, a federal trial court held the company in contempt of court for failure to pay payroll taxes.
How payroll tax went unpaid
The EEOC and the company had entered into a five-year consent decree that required the company to put $3.6 million into a settlement fund that would provide back pay and other damages to 373 female job applicants who the company allegedly discriminated against when hiring new workers.
Sherwood didn’t meets its payment obligations for the damages by the deadline – including the payroll liability related to those amounts – preventing the funds from being disbursed. Back pay is taxable and subject to withholding.
At the last minute, the company attempted to negotiate a 10-day extension, but it wasn’t enough to stop the EEOC from hauling it into court.
Sherwood asked the court if it could pay the outstanding amount in installments, but the judge refused and told the company it should’ve made that proposal during settlement negotiations. The judge ruled in the EEOC’s favor and ordered that the total payroll taxes owed be increased from $361,890 (what Sherwood would’ve owed had it paid on time) to $408,749. It has 30 days to pay up.
The court also ordered that if the company fails to make the payroll tax payment on time again, it must submit to a financial review by a third-party accountant named by the EEOC, at Sherwood’s expense.
Don’t forget to withhold on back pay
Delayed payroll tax withholding, including on back pay, can end up costing companies a lot of money in penalties, fines and interest. And in this case, it drew scrutiny from a federal agency that otherwise wouldn’t be involved in payroll taxes.
Pass this along to your Payroll pros as a reminder of why it’s important to stay diligent on withholding responsibilities.