By Janet B. Hutchison
The National Labor Relations Board
(NLRB) has dealt another blow to employers who lose a labor dispute under the
National Labor Relations Act (NLRA). In
a recent decision, Latino Express, Inc.
v. International Brotherhood of Teamsters, Local 777, 359 NLRB No. 44(2012), the NLRB ruled that employers will be required to compensate employees
for any extra taxes the employee would incur resulting from lump-sum backpay
awards. Further, the NLRB held that
employers must submit documentation to the Social Security Administration so
that when backpay is paid, it will be allocated to the appropriate calendar
quarters.
Under the remedial policies of the
NLRB, when workers receive an award of backpay under the NLRA, the amount is
computed on the basis of separate calendar quarters but paid in one lump
sum. Because the backpay is considered
“wages,” it is subject to a withholding of Social Security taxes. The Board reasoned that the victim may
continue to suffer the effects of the unlawful actions of the employer unless
the backpay is properly allocated to the appropriate time periods for Social
Security purposes.
Further, the IRS considers a
backpay award to be income earned in the year the award is paid, regardless of
when the income should have been received. According to the Board, this might result in
the worker being pushed into a higher tax bracket. Thus, the Board determined that the employee
would not truly be made whole from the unlawful act unless the employer pays
any extra taxes resulting from the lump sum payment.
The NLRB ruled that these changes
will be applied retroactively and, therefore, will be included in remedial
orders in both future and currently-pending cases.
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