(Dow Jones) Wells Fargo & Co. (WFC) is throwing its legacy Wachovia Securities advisors for a loop, with payroll changes that went into effect this month.
The new system will automatically withhold 25% of brokers' commissions for taxes, regardless of their tax brackets. The flat rate will be in place until 2011 for the roughly 11,000 brokers who make up Wells Fargo Advisors, the firm's traditional brokerage channel.
Wells Fargo acquired Wachovia a year ago, and didn't have a large retail brokerage until then.
"When you work for a company that big, once they make a decision on how they are going to do payroll, they aren't going to give anyone special treatment," said Lawrence Staat, partner at the Chicago-based law firm SNSFE, P.C. "I guess that's one of those cultural changes everyone talked about when Wells Fargo bought them."
Teresa Dougherty, spokeswoman for Wells Fargo Advisors, said there is a difference in the way the two legacy payroll systems operated. She said those changes were communicated to advisors throughout the integration, and the firm is working on a solution for 2011.
But this year, many brokers will face lower take-home pay from withholding too much because of the flat 25% rate-a frustration that will likely affect advisors producing less than $500,000 annually.
The average Wells Fargo advisor is in the $400,000 production range. If affected, advisors won't receive their tax refund until 2011.
Wells Fargo is offering impacted advisors a one-year loan with 3% interest, as cash-flow assistance while their money is tied up.
Brokers in tax brackets higher than 25%, which likely includes $1 million-and-up producers, have to elect to withhold more money before each pay period, or else face government penalties for withholding too little.
Once a broker's take-home pay reaches $1 million, which would only be for the few $2 million-to-$3 million producers, the flat-rate tax withholding bumps up to 35% on the part over $1 million.