Paying employees in cash is not illegal but frequently employers do not comply with employment laws concerning paying in cash. Employees’ lawsuit against the employer for paying in cash has resulted in settlements averaging $100,000.
Brad Nakase, Attorney
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Assuming paid under the table means no paystub, nor wage deductions that complies with Labor Code section 226, yes it is illegal to pay employees cash under the table. If the employer does not comply with Labor Code 226, it is illegal to pay employees cash under the table.
Some businesses prefer to pay their employees by cash rather than checks or direct deposits. If an employer pays its employees by cash, you must still report employment taxes. Paying employees off the record or paid under the table is illegal as you are not reporting taxes.
Starting a new business and determining the easiest way to pay employees leads many employers to think of cash. Cash is not the most efficient pay method to use. It is fast and easy, but it is also easy to make errors when handling cash. Payroll errors can mean big penalties for your business.
You may be asking. “Can I be paid in cash, and if so, am I entitled to an itemized wage statement?” Yes. According to DIR, pursuant to Labor Code Section 226(a), semimonthly or every time you are paid your wages, whether by check, in cash, or otherwise, you must be given a detachable part of the check or a separate writing showing required information. e answer can be found
California Labor Code section 226 set forth requirements for providing employees an accurate statement. It states:
An employer, semimonthly or at the time of each payment of wages, shall furnish to his or her employee, either as a detachable part of the check, draft, or voucher paying the employee’s wages, or separately if wages are paid by personal check or cash, an accurate itemized statement in writing showing
If an employee is paid cash under the table, their wages do not have tax withheld from them. Employers generally do not fill out the tax forms when they pay cash under the table, and they do not fill out W-2 forms with employee wages. When an employee is not recorded, they do not receive workers compensation or disability insurance, and they do not have the same benefits and rights.
It is illegal to pay employees cash under the table as you are not fulfilling your tax or insurance duties to them. You will not be in compliance with federal and state employment laws.
It is perfectly legal to pay employees in cash, but it can cause more complications than other payment methods. For one, it is harder to have accurate records of wages paid. As discussed above, Labor Code section 226(a) requires that an employer provide to its employee an accurate wage statement. It is also more complicated to accurately calculate payroll taxes. If you do not pay the necessary payroll taxes, you could be in trouble with the IRS.
Every business operates differently and has different needs. If paying cash is easier for you, then go ahead and pay your employees in cash. However, there are a few things you need to keep in mind:
