Legal Risks of Paying Employees in Cash

Legal Risks of Paying Employees in Cash

Paying workers in cash for their services is not necessarily illegal for businesses that operate in Florida but, depending on the circumstances, it can definitely lead to a host of legal problems.  And if the person that’s being paid in cash is ultimately deemed to be an employee of the business, those problems can become very serious and very expensive to resolve. Some of the issues associated with paying employees in cash are discussed below.

“Employees” Versus “Independent Contractors”

Whether someone who works for a business is an “employee” or an “independent contractor” depends on a variety of factors – including, but not limited to, the following:

• Does the business set a schedule for when the person works?
• Does the business control how the person provides the service?
• Does the person provide her or his own equipment, materials and supplies?
• Does the person provide the same services to other businesses?
• Is the work temporary or permanent?

 

If a worker is deemed to be an employee, the business must withhold “Payroll Taxes” from the worker’s pay (“Payroll Taxes” include federal and state income taxes – and Social Security and Medicare taxes).  In addition, the business must also report and pay those taxes – plus the business’ own share of Social Security and Medicare taxes – to the IRS; pay unemployment taxes and state worker compensation payments; submit annual reports of each employee’s income to the IRS; and verify the work eligibility status of each newly hired employee.

Tax Fraud is a Serious Crime

If you are paying your employees in cash to avoid paying certain taxes, it is against the law. In addition, because cash transactions are often difficult to keep track of, you may be inadvertently violating the law without even knowing it. A tax fraud conviction can result in serious consequences, including the following;

• Up to five years in jail
• Fines of up to $100,000

 

For this reason, it is best to engage in standard accounting practices and make sure you keep detailed records of every payment you make. If you do find yourself on the wrong end of a criminal tax investigation, you should be sure to contact an attorney as soon as possible.

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