As small to medium sized businesses we are faced with tough business decisions every day especially in these uncertain economic times. Customers may change strategies, outsource overseas, or even dissolve. When this happens, the “little guys” are the first in line to get hurt and the last in line to get paid (meaning probably never). The business owner has literally no protection if something goes wrong.
WEPPA
Now there is a new Act that will make it even harder for small business to compete. This Act, The Wage Earner Protection Program Act (WEPPA) is both a blessing and a hardship for small business. WEPPA places the employees of Canadian companies who declare bankruptcy right at the top of the creditor pile.
Blessing
Most businesses, small, medium or large, have a majority of employees who are living paycheque to paycheque. For the ethical business owner, their employees’ wages are usually at the forefront. Owners lose sleep over who or what to pay when money is tight. Sometimes they may hang onto government remittances a little longer or not save for vacation pay payouts to employees. The stress of not having funds to pay these as well as regular wages can cause heart attacks, insomnia, and untold mental anquish. Do you feed your own family or do you feed your employee’s family? Tough decision!
The Blessing of WEPPA is that, in bankruptcy, the employees now come first – even before government remittances and taxes. Now, if you’ve come to the unpleasant decision of bankruptcy, you can know that your employees will be paid first. If there isn’t enough cash in your business to pay, the taxpayers of Canada, through Human Resources & Social Development Canada (HRDSC) will pay up to $3000 per claim for unpaid wages, travelling expenses and vacation pay incurred during the previous six months from the bankruptcy or insolvency. $3000 may not come close to what the company owes its workers, but it’s better than nothing at all. The fact that employees have some protection may make the ordeal a tiny bit easier.
Hardship
The hardship of this Act is that it will force Banks to scrutinize small business even more than it has in the past. Bankers are going to take a closer look at the Balance Sheets of small business and follow the payment history of payroll, government payroll and federal and provincial sales tax remittances. The reason Banks are going to take an active interest in making sure you have been paying your employees and taxes is that they have been put farther down the list of creditors to be paid.
The order of creditors will now be employees, government remittances, secured creditors, and then unsecured creditors. We, as small business owners, will very likely see a rise in interest rates to cover the risk of increased liability to the banks.
Also under WEPPA, company owners and directors become personally liable for any wages owed to employees at bankruptcy or insolvency. So, if you think that incorporating will relieve you from any liability, think again. If the company goes bankrupt or insolvent, you may have to sell assets or declare personal bankruptcy to make these payments as well as pay back the HRDSC.
So having been on both sides of the track, an employee and a business owner, I have mixed feelings about this Act. The humanitarian in me applauds it as I feel people should be paid what is owed to them. But as a business owner it is just another barrier that, if I let it, could keep me from expanding and growing my business. At a time when the government wants low unemployment, it’s not encouraging me to hire.
What is your take on this new program?
Tags: employees, employers, Entrepreneur, small business, wages
Can you tell me who did your layout? I’ve been looking for one kind of like yours. Thank you.
Hi, Mike
I got this layout from WordPress Themes. This is called amazing-grace. Glad you like it.
You write very well.
Thanks, Dory. It’s still a struggle to get my thoughts and research down on “paper”, but I’m hoping it will get easier.
As an employee of a bankrupt company, I have a few questions I can’t seem to get answers for. Under weppa, is the employee entitled to severence pay if terminated? As it stands, the bussiness is still open, and no jobs have been lost, but once it is sold, who knows. Also, can the individual who declared bankruptsy, secure new investors and buy the bussiness back under a new incorporation in less than a month? It’s very obvious this is what’s happening. Employees as a whole were actually pleased with the news of this individual declaring bankrupsy. We were looking forward to new ownership and getting out from under the weight of his incredible mis-management. Any direction would be greatly appreciated.
Thank you for your comments, Anne. You raise a lot of good questions and have given me a lot of fodder for more posts.
Which one is bankrupt, the company or the individual? There is a big difference. If your company is a limited corporation and any or all of the shareholders declare bankruptcy, this does not mean the company is bankrupt. A bankrupt individual can maintain shares in a corporation but has to declare that ownership as an asset in his bankruptcy. Then, any funds that the company pays to the bankrupt has to be declared. (Another blog post)
Always remember that a corporation is an “individual” or “entity” unto itself. They are not totally mutually exclusive, but one may be affect the other. (another blog post) If the corporation goes bankrupt, the shareholders may not have to also go bankrupt, but they are legally responsible for certain expenses if the company can not cover them. i.e. the new change in weppa.
A company does not have to go bankrupt if it unable to pay its bills. It can actually just close its doors. Then, as we’ve seen over and over, they can reopen under a new corporation. This is not recommended as suppliers tend to have long memories. (another blog post)
Having worked with bankruptcy trustees such as KPMG and PWC and having also worked for a couple of large companies that have gone through bankruptcy or Chapter Eleven, I can tell you it’s a very complicated process. It behooves you to do your homework and find out what your rights are depending on the structure of the bankruptcy your company is involved in.