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Paying Employees Under the Table

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What Does It Mean to Pay Employees Under the Table?

When employees are paid in cash by employers who do not deduct for standard IRS tax and social security requirements, they are said to be paying “under the table.”

Employers are required by state and federal laws and financial regulations to report all income paid to employees. Employers contribute portions of each employee’s wages to social security, unemployment benefits, disability benefits, and federal and local municipal taxes that pay for schools, roads, and law enforcement costs.

Depending on how much income is unreported, the nature of the failure to report, and the time periods in which the employer failed to report, paying employees “under the table” may constitute unreported income fraud. This can lead to both civil and even criminal penalties for white collar crimes. It is in the business’ best interest to comply with local and federal tax laws in every transaction, including on matters of payroll. 

What are the Consequences For Illegally Paying Employees “Under the Table”?

Consequences for unreported income fraud can range from minor violation charges to serious criminal charges.

  • Businesses can lose their employment licenses.
  • IRS audits can be lengthy and result in fines and financial penalties.
  • Future applications for business loans and business credit can be affected.
  • White collar crime convictions can result in civil charges as well as criminal sentences.

Paying employees cash “off the books” also creates additional complicated financial logistics for the employee. He or she will need to report all earned income on federal tax returns. They will not have W-2 forms or other formal records of their earnings. If they have to file for disability or unemployment insurance, they may not be eligible to receive it.

What are Some Defenses Employers Have to “Under the Table” Charges?

Employers can pay their employees in cash as long as they keep accurate payroll records and report all income and payroll data promptly and truthfully to the IRS.  Complete payments must be made on each employee’s behalf for worker’s compensation, unemployment, and disability claims. Checks can easily be generated through a payroll system that will make these deductions on behalf of the employer. Direct deposit is another option employers can use to transfer funds quickly and easily to their employees.

Do I Need a Lawyer? 

Yes. Tax law is extremely complicated and carries serious penalties. A business may not be able to survive a tax audit and the potential penalties that could result. You need an experienced employment lawyer to represent you and protect your best interests during an audit and any potential charges that may result.

Photo of page author Danielle Winterton

, LegalMatch Legal Writer

Last Modified: 02-23-2016 01:15 PM PST

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