What do the nine Supreme Court justices have to say about the way your finance department works?
Plenty, these days.
Two recent opinions from the highest court in the land will impact day-to-day work in Finance for you and your staffers.
Specifically, the latest rulings impact Payroll and Accounts Receivable. Here’s what you need to know.
Issue No. 1: The taxability of severance payments
It’s never easy when your company has to let someone go, whether it’s a single staffer or a large-scale reduction in force.
How it can get worse: If you also step out of compliance with IRS in the process.
The tricky issue: FICA tax.
In this case, Quality Stores, Inc., filed for Chapter 11 bankruptcy and then laid off 3,100 employees. Most of those employees received severance pay. And that’s where the controversy came in.
Quality’s payroll staffers withheld FICA tax for both the employer and employees, but then the company requested a refund, claiming severance payments weren’t wages.
The case made its way through the courts, ultimately ending up at the Supreme Court, which ruled severance was taxable as wages.
That decision not only impacted Quality, but countless other employers who would have been FICA refund eligible for taxes they’d paid on their own severance payments.
Now that the final word’s been spoken, be sure Payroll understands:
- FICA gets withheld and remitted on all severance payments, and
- there’s no longer any need to hold out hopes of a refund of past tax payments.
Issue No. 2: ‘Firing’ problem customers
What if it’s not an employee that has to be let go, but a customer? The Supreme Court has something to say about that, too.
This issue often lands in A/R’s lap, when you have a customer that is constantly complaining about your products or services, and demanding concessions to make up for it. Eventually you may start to wonder whether that’s a customer worth holding onto. (They may cost you more than they make you.)
The good news: The Supreme Court says you can cut the cord.
This time the case that made it to the High Court’s attention involved a customer who was a member of Northwest Airlines frequent flyer loyalty program.
To say this customer wasn’t easy was an understatement: He often complained about his experiences with the airline and even received refunds to compensate him for his troubles.
Finally, when Northwest had enough, it ejected him not only from the loyalty program but from future flights as well.
The customer sued for breach of contract and the case traveled all the way to the Supreme Court, and the company triumphed.
Seeing as A/R staffers are the ones who may spot problematic customers first – disputed bills, requests for credits, etc. – you’ll want to encourage them to bring that to your attention quickly.
If an account is becoming too much of a cash drain, your company may be able to send them packing. (Key point: If you have a customer loyalty program make the terms crystal clear that you can drop customers from your plan for any reason at any time.)