Do I Have a Case

[welkins]

I have been contemplating a conversation with the IRS about my employer.  Our ortho practice was sold to the hospital a couple years ago and we were integrated into the existing hospital ortho practice.  As part of the sale agreement (verbal), all of the current staff would continue to receive their same pay and their years of service would count toward PTO accrual and so on.  Essentially the staff were transitioned over with no changes except they were now employees of the hospital.  My agreement with the SP included a productivity bonus that paid me 30% of the profit I generated after deducting the costs for my salary, insurance, vacation, CME etc.  The SP continued to contribute to my retirement plan as he did the other office staff.  When we discussed this arrangement with the hospital they agreed to continue the same model (the hospital has a productivity model based on RVU, but their base is set so high no one can reach it to earn productivity) so I transitioned over to being a hospital employee.

 

A few months ago I got a productivity check that was low so I requested a copy of my productivity calculations.  When I reviewed them they were deducting all the expenses as expected, except they also deducted the "Employer portion for retirement" which is 2% of my base salary and provided as a benefit to all eligible employees.  They also were deducting the "employer portion of FICA".  These items were listed as such on the quarterly calculation sheets.  This has been going on since I became a hospital employee in Oct 2014 and I had no idea until I asked for the calculation sheets.  

 

I do not think they can make me pay their portion of the FICA tax.  The law as I read it says their tax must come from their earnings.  My productivity is not $$ they earned, I earned them.  I'm sure they pay quarterly taxes and the FICA % they are required to pay gets sent, but I think it might be illegal to charge me on the back end for their tax and claim it as an expense to deduct from my productivity.  Besides that, its deductible and they can claim it when they file their taxes.  My best guess is they are making me pay their tax AND claiming it in their overall deductions when they file, which would be a net plus in their favor.

 

I don't think they can give a retirement benefit to the other employees and not afford me the same consideration in regards to the 2% retirement contribution.  They still do the contribution, but it is deducted as an expense before paying my productivity.  This means I am fully funding my retirement at the hospital, which is why I haven't contributed more because I think they would add their match to the productivity deductions.

 

I discussed this with the HR director and he and the CFO "reviewed the matter".  Their decision was they would continue to make the same deductions because that's how they have been doing it since I became a hospital employee (retirement and FICA deductions were not part of the original agreement) and if I didn't want to do that I could switch over to the other productivity model and get less productivity (no productivity because the base is set too high to achieve).  To me this seemed like a veiled threat and I took it to mean, "we are going to keep cheating you and if you don't acquiesce you won't get any productivity".

 

I would like to know if anyone has had any similar experiences and if anyone thinks I should notify an authority outside the hospital?  My first thought would be to file a complaint with the IRS.  I am certain if the IRS investigated/audited them other discrepancies would come to light.  Another thought is if the hospital found out (and they would find out) who filed the complaint, I would be fired.  Please respond with any comments, suggestions, experiences, etc.    

[stellahead]

Talk to a lawyer. That's what they get paid for. You need to consider retribution. I'm talking to one soon about my departure with my current employer. I'm happy to pay for a few hours just to know for sure.

[welkins]

I did talk to an attorney.  Too close to home to consider the case.  He lives in the same town as the hospital.  He said the FICA was illegal for them to deduct.  He wasn't sure about the retirement part being illegal, but I still question its legality from a tax standpoint because I bet they can deduct benefits offered to employees as a business expense.  They just shouldn't be able to deduct the expenses and get reimbursed for them too.  Its kinda like making a patient pay for a service and billing their insurance for the same service and keeping both payments.

[AliB]

If you had a written agreement with your previous employer that defined the basis for "profit" on which your productivity bonus compensation is based, then you may have a case.  If it was not clearly spelled out what your employer considered as your "cost" in calculating profit, then you probably don't.  

 

Your cost to your employer DOES include their portion of FICA, MCARE, retirement contributions, as well as costs for FUI, SUI, WC, etc - other expenses that are costs directly tied to the compensation and benefits paid to you.  Yes, it's their expense, but so is your salary and all of your other benefits that are directly attributable to your employment.  Your vacation time, the portion of your insurance premiums that they pay, are deductible business expenses for the business as well.  

 

I do understand your feeling that you're paying for an expense that is their responsibility, but you're not from the business entity's perspective.  

 

Caveat:  I am not a PA, I am PA-S.  However, I've owned and operated other businesses with a similar base pay, plus bonus structure, and yes, all of those other 'costs' that were directly attributable to, and benefited, the employee, were considered the "cost" of that employee, and deducted from revenue to determine the profitability of that person.  That's basically the sticking point here.  They can't "charge" you for the expenses that are their responsibilities as an employer; they can however, include those costs in calculating the profit that you bring to their business, before they calculate your productivity bonus.  

[welkins]

If you had a written agreement with your previous employer that defined the basis for "profit" on which your productivity bonus compensation is based, then you may have a case.  If it was not clearly spelled out what your employer considered as your "cost" in calculating profit, then you probably don't.  

 

Your cost to your employer DOES include their portion of FICA, MCARE, retirement contributions, as well as costs for FUI, SUI, WC, etc - other expenses that are costs directly tied to the compensation and benefits paid to you.  Yes, it's their expense, but so is your salary and all of your other benefits that are directly attributable to your employment.  Your vacation time, the portion of your insurance premiums that they pay, are deductible business expenses for the business as well.  

 

I do understand your feeling that you're paying for an expense that is their responsibility, but you're not from the business entity's perspective.  

 

Caveat:  I am not a PA, I am PA-S.  However, I've owned and operated other businesses with a similar base pay, plus bonus structure, and yes, all of those other 'costs' that were directly attributable to, and benefited, the employee, were considered the "cost" of that employee, and deducted from revenue to determine the profitability of that person.  That's basically the sticking point here.  They can't "charge" you for the expenses that are their responsibilities as an employer; they can however, include those costs in calculating the profit that you bring to their business, before they calculate your productivity bonus.  

But can they also claim it on their taxes as an expense?  I think they are collecting from me as an expense and claiming it.  That makes it a net gain.  I am not convinced the FICA can be deducted from my earnings.  The law as I read it says it has to be from theirs.  It is a federal tax and is payable on all employees.  They are not paying their tax if I'm paying them back.  It would also be fraudulent in my view if they got their tax back from me and claim they paid it when filing their taxes.  

[AliB]

On 6/25/2017 at 8:19 PM, welkins said:

But can they also claim it on their taxes as an expense?  I think they are collecting from me as an expense and claiming it.  That makes it a net gain.  I am not convinced the FICA can be deducted from my earnings.  The law as I read it says it has to be from theirs.  It is a federal tax and is payable on all employees.  They are not paying their tax if I'm paying them back.  It would also be fraudulent in my view if they got their tax back from me and claim they paid it when filing their taxes.  

 

But you aren't paying them back, they are including that cost when they calculate the profit you brought to the business.  

Using simple round numbers (and we'll exclude withholding since that's a pass-through), let's say you make $100K salary.  They pay you that salary, less your employee taxes, which they withhold from your pay.  Again, keeping it simple, 7.65%, for FICA.  Each year (actually paid every month (or quarter)), they send the IRS the $7650 they withheld as your employee taxes (along with your FWH), plus another $7650 for their employer responsibility.  So, at this point, you've COST them $107,650.  They also had to send another $434 for FUI, and some % to the state for SUI (varies by state) which we'll just say is 500 for simplicity.  Add in the 2% retirement match they pay for everyone participating, and that's another $2K.  Most likely they're paying some portion of the insurance premiums for medical/dental/vision, STD, LTD, etc.; again, for simplicity, let's say you pay $100/month, deducted from your pay, but they are paying $700/mo (FWIW, that's fairly consistent with the numbers I had to pay when I opted for COBRA after leaving employment and the subsidized health insurance), so there's another $8400.  

So at this point, you've cost them $118,984 for the year in direct costs.  Leave vacation out of it.  That's time off that's part of your base salary compensation.  

Now, why would they NOT calculate the profit using that number?  They are not charging YOU for the employer costs that are their responsibility - FICA, FUI, SUI (and I didn't include WC).  They are considering those as their COSTS for you and deducting it from the REVENUE you generated to determine the PROFIT attributed to you, and then bonusing you 30% on that profit (after ALL of their expenses for you are deducted).