Is it illegal to get paid under the table?

Yes – get paid under the table means paying wages to employees by cash, check, or other compensation with the intent to evade paying payroll taxes. In California, failure to report wages to any government agency is illegal.

Author: Douglas Wade, Attorney

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By paying employees under the table, employers effectively avoid paying taxes. The IRS requires that employers withhold and deposit employment taxes. If an employer pays an employee under the table and the IRS finds out about it, the employer is going to have to pay all that tax money. Additionally, an employee might be entitled to damages if the employer is getting paid under the table.

Is It Against the Law to Pay Workers Under the Table?

It is against the law in California for employers to pay cash under the table and not report employee earnings to a government agency. An employer paying cash under the table can avoid paying workers’ compensation insurance, avoid tax obligations, and more.

When employers pay workers without record, many do so to avoid paying taxes to the Internal Revenue Service (IRS). Other employers pay workers off the books to avoid providing them benefits or other services.

In California, companies must withhold from all payments to employees and in doing so, pay:

  • Workers compensation
  • State unemployment insurance (SUI)
  • Social Security
  • Federal taxes
  • Unemployment insurance (FUTA)
  • Overtime payments
  • State disability insurance (SDI)
  • State taxes
  • Medicare
  • Additional employment benefits, depending on the job and industry

When a business does not pay these taxes and other fees when paying employees in cash, the employer is still responsible for these withholding amounts and charges. Therefore, employers who pay employees under the table can be penalized in several ways.

What Penalties Do Employers Who Pay Under the Table Face?

Employers who do not record cash payments to workers face the following issues:

  • Federal tax penalization that require the business to pay the employees’ unpaid liabilities. Penalized employers might also have to pay additional fines for misclassifying their employees, such as $5000 per worker, 20% of the worker’s social security withholding, and 1.5% of the worker’s federal income tax liabilities.
  • Criminal prosecution. Companies that pay their employees under the table face investigation from the IRS, and companies found guilty of tax evasion sometimes must serve time in prison.

Employers face sizeable risks for paying workers under the table, but employees also risk forfeiting their eligibility for social Security and worker’s compensation benefits.

What Should Workers Do if Their Employer Pays Them in Cash?

It is not against the law for businesses in California to compensate their workers in cash. However, an employee getting cash under the table can make it difficult for workers to pay the correct amount of payroll tax. Many employers who pay under the table do not provide their workers with pay statements, but the law states that employers must follow all employment laws when paying their workers cash. For example, businesses must keep accurate records to compensate for the lack of a paper trail that accompanies cash payments.

California Labor Code Section 226(a) states that all pay statements must include the following information:

  • The number of gross wages
  • The number of hours worked in total
  • The earned piece rate
  • The number of net wages
  • The pay period of the paycheck or cash payment
  • The worker’s name
  • The last four digits of the worker’s Social Security number
  • All deductions
  • The address and name of the company
  • The employee’s hourly rate

Therefore, if an employer opts to risk paying workers in cash, they must abide by all of the states of California’s payroll requirements even when paying cash under the table.

Can Employees File Lawsuits Against Their Employers for Paying Them Under the Table?

When a California business pays its workers under the table, the workers may be able to collect damages, according to the state’s Labor Code Section 226.

Companies may be responsible for:

Unpaid Wages

Employees who make a successful wage claim typically collect the wages the employer refused. If the worker earned overtime pay yet only was paid regularly, they are also entitled to the amount of the difference between the standard pay rate and the overtime rate.

Attorney Fees

The employer may have to pay legal fees if the employee wins the case.

Interest

Workers may be able to collect interest on their uncompensated wages at a rate reliant on the law, and they also might be able to collect liquidated damages. Liquidates damages help pay employees for losses that are challenging to quantify.

Penalties

In California, businesses must pay “waiting time penalties” for 30 days of unpaid earnings. This penalty equals the worker’s daily pay rate for each day the earnings go unpaid.

How Can Workers Report Employers for Paying Them Under the Table?

Employees who collect their pay under the table should contact a professional attorney to discuss their options. All workers in California are entitled to the proper compensation for their hard work and time. At Nakase Wade, our California business lawyers and Corporate attorneys provide each client with an individualized plan of action created to help protect them and to help them collect the damages they deserve. Contact Nakase Wade for a free initial consultation today.

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