Duluth company's cash-flow woes leave workers holding the tabEmployees of Duluth Web developer 50 Below complain of delayed compensation and paychecks that sometimes bounce.
By: Peter Passi, Duluth News Tribune
50 Below Sales & Marketing Inc. failed to pay some of its employees before Thanksgiving, marking the latest in a long string of financial problems at one of Duluth’s largest technology employers.
The problem came to light when a distraught employee posted an anonymous request for advice on a local blog asking how to handle the situation.
Although Mike Rollo and Dave Hogge, 50 Below’s principal partners, did not respond to calls from the News Tribune seeking comment, the company did issue a statement about its recent payroll issues, acknowledging the missed payment to employees. The company employs more than 250 people.
“50 Below experienced some unforeseen accounts receivable delays in early November which led to a temporary cash-flow deficit,” the statement read in part . “The problem has been resolved.”
This isn’t the first time the company has failed to pay workers on time, several former 50 Below employees said.
Bill Walz, 24, worked four years at 50 Below and said the company repeatedly had problems paying its employees in a timely fashion. He said two paychecks he received bounced.
Frequently, employees either did not receive paychecks on time or did receive them but were asked not to cash them until the next week, Walz said.
About a year and a half ago, some employees were asked to forgo getting checks, according to Walz. “They came to everyone and said, ‘Hey, we just don’t have the money to pay every one right now, and we’re not going to.’ ”
Walz, who left 50 Below in September, said its managers sometimes attributed the company’s financial struggles to ongoing efforts to pay overdue taxes and penalties to state and federal government agencies. The company currently owes more than $576,000, according to lien records filed with the St. Louis County Recorder’s Office.
The company and its owners have paid off nearly $7 million in federal and state liens since 2000, including to the Internal Revenue Service, and the Minnesota and Wisconsin Departments of Revenue. Most of those liens were filed against 50 Below for failing to pay payroll taxes.
“Sometimes that’s what we were told — that there were irregularities due to trying to pay off taxes,” Walz said. “Sometimes the owner would come to us and say, ‘We don’t have enough money and here’s why.’ ”
In 2006, the U.S. Justice Department took 50 Below to court, successfully seeking the repayment of about $3.7 million in unpaid employment taxes.
The company also pleaded guilty in 2008 to embezzling more than $45,000 from an employee 401(k) retirement savings plan. It was ordered to pay about $70,000 in fines and is still serving a five-year probation term.
50 Below specializes in online marketing and large-scale Web applications for corporate clients.
Scott Herrington, who worked in Web development at 50 Below from April 2010 to June 2011, said the company split its work force in half to create separate pay cycles. He said the arrangement was designed to reduce the impact of issuing all the firm’s paychecks at once.
“And they still would bounce,” he said.
Herrington said employees often were asked to hold onto checks and delay depositing them. His wife, Elisabeth, worked at 50 Below on and off over seven years.
Karl Anderson, who worked as a sales representative for 50 Below from 2008 to 2010, said there were recurrent cash-flow issues.
“Receiving the physical check was not a problem if you wanted it,” he said. “Sometimes if they knew they would be short on pay, they asked employees who weren’t supporting families if they could go without a check for a few days. If you told them you needed a check, then they got one to you. It may not have cleared, but you did receive one.”
Anderson said he had four or five checks bounce.
Walz said that after his second check bounced, he did what many other employees did — opened an account at the same bank used by 50 Below. “They would tell you if there wasn’t money to cash the check,” he said. “That way it wouldn’t reflect on your account.”
Herrington also got an account at the same bank as the company’s owners and cashed his check as soon as possible. “It was a trick people started using,” he said.
An occasional bounced check or a minor delay in making payroll doesn’t necessarily put an employer in legal peril. Minnesota statute requires employers to pay workers “at least once every 31 days.”
Walz said that while there were often delays in getting paid, eventually he would always get his money.
Herrington said dim market prospects probably mean he’ll have to move out of the area to continue working in the online marketing field. Despite 50 Below’s financial problems, he said he wanted to see the company succeed.
“It would have been nice to not have to go to the Cities,” he said. “Having a nice, cool IT job in Duluth is the ideal.”
Walz said he had hoped he could help turn 50 Below around.
“I did enjoy my job. There is a very talented group of individuals there that are great to work with and they’re smart and motivated,” he said. “The company definitely has potential to go places, and think that was the hardest part of working there.”
News Tribune staff writer Mike Creger and Investigations Editor Brandon Stahl contributed to this article.