A VC in Vacationland

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Money is tight and many entrepreneurial start ups are looking for any ways to save money.  This will be the subject of a future post.  But today, we shall try and keep you out of jail. Here are a few ways NOT to save money in a bad economic environment, as they may get you in a lot of trouble:

1.  Payroll tax payments.  The IRS is very particular about collecting what is owed them, as are state and local revenue agencies.  This is an area where you can never be in arrears, unless you would like to have the collectors descend very quickly on your headquarters.
2. Salaries.You cannot legally withhold any contracted salaries and bonuses from employees you have to let go as the result of the downturn.  If there contract says three months severance, that is what you need to pay them within a certain time period, often two weeks after termination.
3. Accrued vacation pay. States are also very particular about paying employees what is owed them for holiday/vacation pay.  Make sure you escrow sufficient funds to take care of all deferred vacation payments.  These must be paid, even in bankruptcy.  You can ask employees to take vacation days or days without pay if business is slow, but be careful it is only a few days, as many states limit the total days you can request.

4. Benefits.  Again, contributions to 401(k)'s and health plans can be renegotiated, but you cannot arbitrarily just stop making agreed-upon payments on behalf of your employees. If times are tough, you can ask them to contribute more to health and insurance plans, but this must be done legally.

If you are having money issues, be sure and consult with your corporate attorneys before making any changes in employee related payments.  You could save yourself a lot of legal hassles with a simple phone call.  Even in the Middle Ages, Romanino, the Superintendent, (above) knew he better pay his workers on time.