Is It Legal To Pay Employees Cash Under the Table?
Brad Nakase, Attorney
Is It Illegal To Be Paid Under the Table?
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. If you’re an employee that was paid cash under the table, please call employment attorney, Brad Nakase, for a free consultation.
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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
- The gross wages earned,
- The total hours worked by the employee, except as provided in subdivision (j),
- The number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis,
- All deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item,
- net wages earned,
- The inclusive dates of the period for which the employee is paid,
- The name of the employee and only the last four digits of his or her social security number or an employee identification number other than a social security number,
- The name and address of the legal entity that is the employer and, if the employer is a farm labor contractor, as defined in subdivision (b) of Section 1682, the name and address of the legal entity that secured the services of the employer, and
- All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.
Is it legal to pay employees cash under the table?
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.
Is it illegal to pay employees cash?
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.
Downsides to paying employees in cash
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:
- Safety risk – You may have to withdraw large amounts of cash for paying wages. It can be unsafe to carry or store that amount of money for a long period of time. There are increased risks of theft, or simply losing the money.
- Wage statements – Regardless of the payment method, all employers need to give their employees a wage statement. Penalties for not providing wage statements can be huge as they are calculated per employee and per pay period.
- Proof of payment – Employers are required to pay their employees on payday. Paying by check or direct debit has proof that the employee was paid on the correct day. If you choose to pay by cash, it is important to get employees to sign receipts to say they have received their payment.
- Payroll mistakes – While it is much easier to DIY your payroll, and there are no systems or accountants required, payroll mistakes can be costly. It is easy to miscalculate payroll taxes or forget to pay them at all. When using cash money, it is also more difficult to fix mistakes. Payroll mistakes, even honest mistakes, can attract fines, audits, or imprisonment. Ongoing payroll errors will mean you will be flagged to enforcement agencies.
- Consequences to employees – Your employees will not have a paper trail of their wages which will affect them in the long term. It will affect their credit score, finances, and their ability to rent or buy property.
- Lack of funding options – Without a payroll, loans and other funding can be challenging.