Pennsylvania Labor and Employment Lawyer & Attorney : McNees Wallace & Nurick Law Firm : Human Resources, Workplace and Business Law : Harrisburg, Lancaster, Allentown, Lehigh

Employers offering severance payment to employees are typically uncertain about the payroll taxes that may apply to these additional payments. Severance pay is treated as “supplemental wages” because it is not a payment for services in the current payroll period but a payment made upon or after termination of employment for an employment relationship that has terminated. As supplemental wages, special payroll tax withholding rules apply. The Internal Revenue Service recently clarified its position on withholding for supplemental wages, including severance pay.  Employers should also make sure that severance payments offered in conjuntion with a waiver and release comply with the ADEA and WARN requirments.

Revenue Ruling 2008-29 addresses nine different situations where supplemental payments are made to employees that require additional payroll tax withholding as follows:

1. commissions paid at fixed intervals with no regular wages paid to the employee;
2. commissions paid at fixed intervals in addition to regular wages paid at different intervals;
3. draws paid in connection with commissions;
4. commissions paid to the employee only when the accumulated commission credit of the employee reaches a specific numerical threshold;
5. a signing bonus paid prior to the commencement of employment;
6. severance pay paid after the termination of employment;
7. lump sum payments of accumulated annual leave;
8. annual payments of vacation and sick leave; and
9. sick pay paid at a different rate than regular pay.

For the supplemental wage payments identified above that do not exceed $1 millon, the amount of income tax withholding is determined under the rules provided in § 31.3402(g)-1(a)(6) and (7). These paragraphs describe two procedures for withholding on supplemental wages: the aggregate procedure and optional flat rate withholding. The Revenue Ruling explains the application of the two procedures to each of the nine payment types. A Supplemental to Circular E also provides guidance on withholding in Publication 15 and Publication15A.

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The EEOC released its Annual Report on the Federal Workforce for Fiscal Year 2007 (period October 2006 to September 2007).  For those employers who may be benchmarking against the federal government, it seems to me that the government performs at a level that the EEOC would never accept from other employers. Here is a sampling of report’s findings:

·         The federal government employs almost 2.6 million workers of which 56.8% are men and 43.2% are women.

·         The federal workforce’s demographic composition is 7.8% Hispanic or Latino; 65.8% White; 18.4% Black or African American; 6% Asian; 0.2% Native Hawaiian/other Pacific Islander, 1.7% American Indian/Alaskan Native; and 0.2% reported 2 or more races.

·         Hispanic or Latinos, Whites, women and persons of Two or More Races remained below their overall availability in the national civilian labor force, as reported in the 2000 census (CLF).  Black or African Americans, Asians, Native Hawaiian/Other Pacific Islanders, American Indian/Alaska Natives and men remained above their overall availability in the CLF.

·         Federal employees and applicants filed 16,363 complaints alleging discrimination.

·         Unlawful discrimination was found in 2.8% of the 7,673 cases that were closed on the merits.

·         85% of federal agencies provided their EEO staff with required training.

·         58% of federal agencies have an Anti-Harassment Policy.

The good news is that the government is evaluating its EEO performance and publishing the results.

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 Many organizations take great pride in their employment practices striving to keep them free from employment discrimination. For such companies, a discrimination charge or lawsuit strikes at the very core of the organization’s values.  For example, AARP was recently sued for age discrimination by an employee who alleges she was passed over for promotions, laid off, and never recalled despite openings. The irony of such claims plays well in the media, but shouldn’t derail the organization’s efforts if properly managed.

Organizations need to develop an approach to address high profile public relations matters in advance. The approach should coordinate internal and external communications among company officials, PR firms and attorneys and could include the following:

·         Immediate press release or comment to the media. You may only get one chance to blunt the media impact of a discrimination claim so having something more to say than “no comment”. Lawyers fear public comments about pending litigation because of the lack of control and the potential that statement may be used to impeach the company official who made them. Comments need not address the merits of the claims, but can reaffirm the organizations commitment to its core values. However, comments to the media should be handled by authorized employees and there should be a clear employment policy prohibiting other managers from speaking to the media about official company positions.

·         Internal communications to employees. Employees are sometimes forgotten in the rush to deal with external communications. Information about lawsuits should not be left to the rumor mill. Employers may be limited in what they can say about the facts, particularly if the litigant is still employed. However, at the very least, internal communications should include the fact of the suit, a denial of wrongdoing, and a reaffirmation of EEO policies.

·         Use of non-public forums for dispute resolution. The EEOC, state discrimination agencies and the courts have alternated dispute resolution mechanisms including mediation. ADR can be an effective, less costly and more private forum of resolving discrimination claims.

Obviously, public disclosure of a discrimination claim can hurt a company’s image. Managing internal and external communications with advanced planning can mitigate the adverse impact.

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