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Comment by hglaser | Hacker News Reader

Unpaid wages are one of the few ways to pierce the corporate veil. In the US, officers of the corporation can be personally liable for unpaid wages.

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Unpaid employment taxes too -- the cxx levels, the investors, the board, and every single employee who paid any other expense instead of paying the US gov their money.

I wrote more about this in the past, but even bookkeepers have been held personally liable. The government considers employment taxes to be paid by the employee on the date the employee receives his or her paycheck, and the employer is merely holding on to that money temporarily. It seems quite unwise to fuck with this.

more examples here: https://news.ycombinator.com/item?id=8081173

Would that not mean that US companies go bust at the slightest hint of cashflow problems

Not paying your employees is the first thing you do when you have a hint of cashflow problems?

No I meant that in order to avoid any possibility of personal liability the C team would give up and liquidate the company much faster than the UK where more efforts might be made.

I have direct experience of this - I even chaired a share holder meeting about a refinancing.

Before liquidation there's an option of layoffs and raising additional debt.

Most of US payroll is on a biweekly system, so it's hard to accummulate too much liability as far as employee payroll goes.

US companies will usually either pay their employees first, or fire employees before they can't pay them.

You can float a lot of other bills in various ways, but if a company gets to the point of not being able to make payroll, it's basically game over.

seems to defeat the purpose of a PLC

The US states take unpaid employees very seriously. Think about it from the employee's point of view - if the company can't make payroll one week, you might be tempted to let it ride until next week. If they again can't make payroll, you've put 80+ (120+!) hours into the firm with no payment. I certainly wouldn't be happy in that situation.

This also partly aligns with it being very easy to fire people in the US. The government therefore views the employer as having a perfectly reasonable option in the case where they are truly short of money: fire the employees you can't afford to pay before they work the hours you don't have money for (or something halfway, like giving people a non-optional offer to go down to half-time). In most cases that can even be done with no notice, though that isn't very nice. But it is at least seen as more honest than stringing people along ostensibly working for a salary they aren't going to get.

In practice one way to handle this is keep one payroll cycle's worth of liquid cash "locked up" in an account that is reserved for payroll and which you don't dip into for other expenses. So even in the worst case the last paychecks can be sent out before shutting down, if you avoid the temptation to dip into that account "just this once". That does require having a little bit of a cash cushion, but a VC-funded company should be in a relatively good position in that regard.

This seems a good provision to me.

If there's no personal liability, and the CEO is otherwise looking at bankruptcy, only ethics would force them to be honest with staff about being unable to make payroll. Employees would be out 1 pay at least, probably more, depending on how well the CEO can lie.

So make trading while insolvent a crime as it is in the UK - having a CEO who's panicking about becoming personally bankrupt is the last thing you want in a crisis.

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