I offer as the irritating story of the day, .
The state also recently started using desk audits, in which they use third-party information to scrutinize whether businesses may be making more money than they're reporting. For example, the state can look at how many pizza boxes a vendor has sold to a pizzeria and if the number of boxes is more than the number of pizzas the company said it sold, the state can look closer to find whether tax evasion is the source of the discrepancy.
"If the state went through a normal audit process and determined that we owed money, we wouldn't fight it. We're not opposed to paying taxes," said Panaro.
Instead, he said he was told all of his paperwork checked out, but he didn't meet the state's standards for keeping "adequate records." The restaurant had failed to keep every paper copy of each guest's order receipt for the entire three-year period. That opened the door for the auditor to use "indirect audit methods" to estimate what he thought the restaurant owed.
The method of estimation the state used was to observe the restaurant's sales for a day, then compare it with the same date on a previous year. The previous year's reported sales were 25 percent lower, so the auditor took that percentage and multiplied it over each day's sales of the three-year period, deciding the restaurant did enough unreported business to owe an additional $330,000 in sales tax....
Joe Giafaglione, owner of Bar Bill Tavern in East Aurora, has been audited twice in the past four years. His purchase of ground hamburger raised suspicion when it was found there were no hamburgers on the menu (it was being used as an ingredient in chili).
"It's totally ridiculous the way they come up with figures without any evidence," said Giafaglione. "They say they need 20 [documents], so you give them 19 and they say, "Ah, you don't have that? Well, now we'll have to estimate.'"š"
A similar situation occurred with our company a number of years ago on a contract where some of the work had to be done using Davis-Bacon type mandated wage rates. These rates, for those who have never seen them, come in two parts. They might say, for example, that the minimum for such and such a job is $12.10 per hour plus $3.07 per hour cash instead of fringe benefits for a total of $15.17.
Using these figures, we gave folks an offer letter saying you will be paid $12.10 base pay plus $3.07 fringe for a total of $15.17 an hour. Then on the paycheck, they just got one line for their total hours times $15.17. Well, said the Department of Labor in an audit, you are not paying them the fringe, you are just paying the base pay -- we only see one number on the pay check. So you owe $3.07 times 20,000 or so hours, pay up.
Well, I was pretty surprised. I said it was pretty clear I was paying the fringe - why in the heck else would I pay someone an oddball wage like $15.17 that just so happened to be equal to the sum of base plus fringe. You can see the calculation in each offer letter. No dice, they said, the law requires that the payments have to be broken out on the pay stub.
This was back in my younger, naive days, when I thought the "expert" auditors actually knew the law. Now I know they are sometimes just making stuff up, but I was smart enough at the time to ask them to show me the legal requirement that these two payments be broken out on the pay stub -- show me something in writing. Nothing was forthcoming. My attorney later educated me that there is hierarchy of quality to what might be in writing:
This is where I began to learn about the hierarchy of labor law. As I understand it (and remember, I am not a lawyer) it is something like this, from strongest to weakest:
- The actual statute as written by Congress, e.g. the Fair Labor Standards Act
- Court rulings and precedents
- Approved regulations what have been through the public comment and approval process
- Formal DOL rulings
- Internal DOL guidelines and manuals
- Informal DOL rules of thumb
Numbers 1, 2, and 3 have a lot of legal force. Five and six may or may not "“ they represent the DOL's opinion, but that opinion has not been vetted by a regulatory hearing or court decision. These get overturned by courts all the time.
When the DOL tells you can or can't do something, they likely will say it with equal authority if it comes from 1 or 6. For example, in this case, the DOL said with total authority that the wage and fringe have to be split on the paycheck.
Anyway, I read the actual law myself. The only mention of anything even related to this was the need for adequate record-keeping to prove we had foll0wed the rules. I searched as far as I could through labor department regulations online and found no more detail. So I argued that unless they could produce something different, my position was that the offer letter plus the pay stub was adequate record keeping.
Eventually, the DOL let the issue drop - petulantly, they never actually dropped the claim, just told me they were choosing not to go to court against me at that time. Of course I am only a glutton for so much punishment, so in the future we split the payments out on the pay stub. It creates more work doing payroll, but what is government for, after all?
PS, if its helpful, I have a three part series on my interactions with the Department of Labor beginning here.