Nearly 200 businesses across the state missed close to a collective $1 million in employee wages after their contracted payroll company, now embroiled in an embezzlement case, failed to make proper payments.
Department of Revenue Secretary Peter Barca said the businesses had contracted with online payroll and human resources provider MyPayrollHR, which last month admitted to a $70 million embezzlement case. MyPayrollHR contracted with more than 1,000 businesses across the country, including about 188 in Wisconsin — 20 of which were located in Dane County.
In early September, companies that contracted with MyPayrollHR found that the company had stopped processing employee payroll transactions, resulting in insufficient direct deposits for some employees.
MyPayrollHR has since shuttered, and owner Michael Mann has been charged with fraud.
“They just kind of went out of business precipitously and then left these small businesses holding the bag,” Barca said.
Mann, who owned several companies including MyPayrollHR, was charged with bank fraud last month, according to a September criminal complaint filed in the Northern District of New York. Mann claimed he committed fraud in response to business and financial pressures, according to the complaint.
The complaint alleges that Mann took part in a form of fraud known as “kiting,” in which he wrote checks drawn on one business account and deposited them into a second account, and then reversed the process by immediately writing a check from the second account back to the first. The practice inflates the balance on both accounts, creating the appearance of more funds than are actually present.
Barca said the department still is working to determine how many businesses missed October tax payments. Small business owners will see penalties waived, he said.
Barca said the missing September payments have since been identified and rectified by most businesses owners, but the debacle left some companies potentially open to tax penalties or late payment interest fees with the Department of Revenue.
“I would say you could certainly estimate, at a minimum, it’s between a half a million and million-dollar hit, just on payroll taxes alone,” Barca said. “We’re working with them to make sure all their returns are filed and that there aren’t any penalties.”
Lou Molitor, president and CEO of the Kenosha Area Chamber of Commerce, one of the impacted businesses, was unavailable to comment this week.
To assist companies, Susan Dukes, deputy administrator of the Revenue Department’s income, sales and excise tax division, said the deadline for businesses to make missing payments has been extended to Nov. 3.
“If they make the payment and get the returns here by Nov. 3, there will be no interest fees or penalties,” Dukes said. “We’re helping them out by extending their due date. That’s been helpful for a lot of the clients.”
Revenue Department officials said companies payed MyPayrollHR to process their tax withholding obligation and, while a return payment was received on Sept. 3, a payment reversal transaction was received three days later. So far, the department has been able to reverse the withdrawal of $280,000 in income tax payments and credit them back to impacted accounts.
Diane Hardt, administrator of the Revenue Department’s income, sales and excise tax division, said the department will follow up with business owners in December to ensure the proper records match when employers complete their W-2 documents.