Charles Scone owns and operates a small construction company. Like most companies in the construction business, his company experiences a high level of employee turnover. However, he finds it relatively easy to replace employees because he pays above market wages. He attributes his ability to pay high wages to a little accounting trick he discovered several years ago. Instead of paying his half of each employees FICA taxes to the government, he decided to pay that money to the employees in the form of higher wages. He then doubles their FICA tax payroll deduction and uses half of the deduction to pay his share of the Social Security tax. For example, suppose he plans to pay an employee $2,000 per month. Technically, the employee would have to pay 7.5 percent to FICA and Medicare tax ($2,000 x .075 = $150) and Mr. Scones company would have to match the $150 payment. Instead of doing it this way, he devised the following plan. He pays the employee $2,150 and then deducts $300 for FICA and Medicare tax from the employees salary. The end result is the same. Either way the employee ends up with net pay of $1,850 ($2,000 - $150 = $1,850 or $2,150 - $300 = $1,850). Also, the government gets $300 FICA tax, regardless of how it gets divided between the employees and the employer. Mr. Scone is convinced that he is right in what he is doing. Certainly, it benefits his company by allowing him to offer higher starting salaries. Further, he believes it is a more honest way of showing the real cost of Social Security and Medicare.

Please discuss Mr. Scones actions with this method. Be sure to include your thoughts about the correctness of this accounting technique, the ethical considerations and the legal considerations of his actions.