Have you ever had an employee ask you to pay their wages in cash – unreported? Or, maybe you’ve thought about hiring employees and paying them “under the table” to simplify your bookkeeping. What does it really mean to pay employees in cash? And more importantly, what are the consequences?
The phrase “paying someone under the table” refers to unreported employment. Generally, the company pays the employee with cash since it’s harder to trace. The intent of the employer and employee is to avoid paying taxes. The business doesn’t deduct taxes from the employee’s pay and report the income. The company also doesn’t pay social security taxes, unemployment insurance or workers’ compensation.
If you ask small businesses why they pay their employees under table, some reasons you may hear are:
- “It’s common in my industry.”
- “I can’t afford to pay payroll taxes and insurance.”
- “I can stay more competitive.”
- “My employees don’t want to pay withholding taxes.”
One reason we hear sometimes is that the employer just doesn’t want to go through the “hassle” of processing payroll every couple of weeks! (Outsource your payroll to The Payroll Department! We will take care of it for you!)
We just want you to know there’s a BIG reason why you shouldn’t pay your employees under that table: It’s illegal! And if you’re caught, you could be criminally prosecuted. In addition to paying the taxes owed, you could face prison time (up to five years for tax evasion) and fines of more than $250,000 for individuals and $500,000 for corporations.
And if you think, “Well, if I don’t tell and the employee doesn’t tell, the government will never find out,” you’d better think again. The government would find out if:
- The employee files for unemployment insurance in the future.
- The employee files for social security benefits, gets a lower payment than expected and makes inquiries with Social Security Administration.
- The employee gets injured in the workplace and files a worker’s compensation claim for insurance you don’t have.
- Another person (such as a disgruntled employee, a divorced spouse who’s seeking child support from your employee or a concerned taxpayer) finds out about the arrangement and reports it.
Plus, depending upon the situation, you also could face other penalties for insurance fraud, child support fraud, failure to garnish wages and failure to file new employee paperwork properly.
So, before you even think about paying an employee under the table, you need to consider if it’s worth it to take the chance.
If handling your company’s payroll and submitting taxes to the various government agencies seems overwhelming to you, contact The Payroll Department, a payroll services provider located in Brownsburg, IN. We can make your company’s payroll easier for you by performing all of the processing, making any changes and submitting your IRS filings. Contact us for more information.
– Ariane of The Payroll Department blog team