Paying under the table is not generally unlawful, but most of the time paying under the table violate wage and pay stub laws that often result in employees filing lawsuits for millions of dollars.
By: Brad Nakase, Attorney
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Have you ever wonder if you can ask a lawyer, “Can I report my employer for paying me under the table?” You may report and receive money compensation if your employer violates paycheck law.
If your employer is paying you under the table, you may be entitled to over $15,000.
Please call for a free consultation.
Taxpayers will have to contribute more to support essential public services like:
Paying an employee under the table means paying them in non-traceable forms of payment such as cash to avoid reporting payroll taxes.
What Are Some Excuses For Paying Employees Under the Table?
It is an illegal practice which can result in criminal prosecution and significant penalties and interest.
You do not save payroll taxes in the long run. When you are audited, the IRS or EDD auditor will have minimal information to work with. This means that if you are audited, you can end up paying higher payroll taxes, plus penalties and interest. Generally, you will end up paying 20 times more than if you just handled your payroll correctly. All government agencies will be aware of the illegal activity, and it may hamper your ability to receive loans, grants, and participate in government schemes.
The below table shows an example of this to illustrate the costs of avoiding payroll costs.
Employer A reports a yearly payroll of $100,000, with five employees being paid $20,000 each. This employer pays state payroll covering UI and ETT up to the wage limit of $7,000 per employee.
Employer B also pays $100,000 yearly. However, because they pay cash under the table, there are no records of how much was paid to each employee, meaning there is no record of how many employees work in the company.
The below table shows the additional costs Employer B has due to paying employees under the table.
| Employer A | Employer B | |
| UI/ETT | $1,225.00 | $3,500.00 |
| 1 State Disability Insurance* (SDI) (1.0%) | 1,000.00 | |
| 2 Personal Income Tax (PIT) (6%) | 6,000.00 | |
| 3 Penalty (142.3% – see footnote) | 14,941.50 | |
| 4 Non-Registered Penalty | 500.00 | |
| 5 Failure to Issue Withholding Statement Penalty | 250.00 | |
| 6 Failure to File Electronic Return Penalty | 50.00 | |
| Interest (@5%) through June 30, 2020 | 525.00 | |
| 7 Total due for 1 year | $1,225.00 | $26,766.50 |
The penalties listed in this example do not represent all possible penalties that may be charged.
Note: The UI and ETT are paid by you, the employer. The SDI and PIT are paid by your employees. However, if you fail to withhold employee-paid taxes, they become your responsibility.
