Can an employer directly pay an employee's personal living expenses in lieu of providing a salary?

New York, NY Viewed 240 times. Posted 8 months ago in Employment / Labor

This pertains to a start-up venture with less than 1M in capital in which I am a shareholder. In short, an employee "lived" off of company funds for more than six months. He didn't receive a direct salary but rather, his boss is asserting that providing him this allowance was an alternative to paying him a salary. The employee had direct access to company funds with a debit/ATM card. This spending had nothing to do with the business but only with the employees general living expenses. To boot, a significant percentage of his spending was on alcohol as we (shareholders) now know that this individual is an alcoholic. It is apparent to me that this is fraudulent but I would appreciate a take on it from a legal perspective. Thanks. - Is this your question? Add additional information

Answers (2)

Ronald Anthony Sarno

This attorney is licensed in New York and 1 other state. Posted 8 months ago.

It is illegal to have someone work without being paid. It is a violation of federal and state law, especially since it avoids paying payroll taxes. NYS and the IRS take a very dim view of this unofficial compensation and all officers of the company are PERSONALLY responsible for a failure to pay payroll taxes. Discuss this issue with a NYS business lawyer IMMEDIATELY. Granting an "employee" access to corporate funds for personal use is a violation of the shareholders agreement and a wasting of corporate assets. Whoever permitted this should be immediately barred from any responsibility for the start-up. Every shareholder has a claim against the person who permitted this, the employee and EACH OTHER for totally ignoring NYS law. You need to sit down with a NYS lawyer yesterday. And if your start up is in financial work, Andrew Cuomo will be breaking down your door soon.

Jonathan H Levy

This attorney is licensed in California and 1 other state. Posted 5 months ago.

I agree with Mr Sarno, call it what you like, but it would likely be a salary by any other name.

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