Contents
Paying employees cash in hand is often associated with thoughts relating to tax evasion or illegal activity. If you are a business owner you may be wondering if paying your employees cash in hand is always illegal.
The simple answer is no. Contrary to popular belief, paying your employees cash in hand is not always illegal.
There are ways to legally pay your employees in cash. However, you must be aware of your obligations as an employer.
Read on to learn more about how you can legally pay your employees cash in hand.
What Is Cash In Hand?
‘Cash in hand’ is when a person is paid directly with cash as opposed to through a bank or cheque.
Being paid cash in hand is often associated with language such as ‘being paid off the books.’ Paying employees in cash can sometimes be viewed as a way for employers to avoid paying taxes. This however may not always be the case.
If you as an employer are meeting all of your obligations, paying your employees cash can be an easy and efficient way to operate your business.
Whilst not all cash payments are illegal, some definitely can be, if utilised for the purposes of avoiding paying tax. Let’s break it down.
Is It Illegal To Pay Cash In Hand?
No, it shouldn’t be if you’re making payments in compliance with the law.
In accordance with the Australian Taxation Office (ATO) employers are legally allowed to pay their employees cash in hand if employers carry out their responsibilities. Paying employees cash in hand might be the most convenient way to pay your staff.
Generally speaking, paying your employees cash in hand is legal when:
- You are paying your employees the correct amount in accordance with the relevant award
- Specific awards can be found here
- You take tax out of your employees pay to ensure they do not end up with a large tax bill at the end of the financial year
- You ensure that your employee is still receiving their superannuation pay
- You are covered by employer’s workers compensation in the case of an accident.
To further solidify the legitimacy of paying your employees cash in hand you can:
- Direct your employees to declare their cash as income when lodging a tax return
- Ensure that your employees are still receiving a pay slip to prove their earnings and the amount of tax taken out
- Provide your employees with a payment summary at the end of the year detailing their full earnings for the year and the amount of tax deducted
As an employer your key obligations include:
- Payslips
Despite paying your employees cash in hand, you should still ensure you provide your employees with payslips.
Payslips should generally include:
- Employer and employee’s name
- ABN
- Pay period
- Gross and net pay
- Applicable hourly or salary rates (and the number of hours worked)
- Any other paid entitlements (for example, casual loading)
- Authorised deductions (for example, superannuation or health insurance contributions)
- Superannuation contributions (employees are entitled to a contribution of 10% of their earnings)
- Employee’s employment status (for example, are they a part-time or full-time employee?)
- Any Award that the employee falls under
Ensuring that you still provide your employees with a payslip when they are being paid cash in hand is vital to ensure you are meeting all of your legal obligations as an employer.
For more information on payslips, click here.
- Tax
When paying your employees in cash, you must still meet your tax obligations.
In accordance with the ATO, where your workers are deemed employees you must withhold tax from their wages and report and pay the withheld amount to the ATO.
The fact that you pay your employees cash in hand does not excuse you from not meeting your tax obligations as an employer.
You must declare your employees pay and withhold tax or else you will fail to meet your legal obligations and perhaps face serious penalties.
- Record Keeping
Keeping record of your employees pay is essential to ensure you are meeting your employer obligations.
Paying your employees cash in hand can be more difficult to trace than paying employees via their bank account for example. As such, it is imperative to ensure you keep track of your employees’ pay to ensure that you are meeting your employer obligations.
Ways in which you can record keep include:
- Filing your employees payslips
- Keeping record on an online filing system
- Maintaining hard copy confirmations of pay via cash in hand
As an employer, you are obligated to consider, understand and action the above requirements when paying your employees by cash. Meeting these obligations is vital to ensure that you are legally paying your employees cash in hand.
When Is It Illegal To Pay Your Employees Cash In Hand?
It is illegal to pay your employees cash in hand if you do not meet your obligations as an employer.
For example, if you fail to pay your employees their correct wage in accordance with the relevant award or fail to withhold tax from your employees pay, then paying your employee cash in hand will be illegal. It’s not really the method of payment that is important, it is more complying with the relevant laws.
For example, even if you were making payments through the bank or giving out paper cheques, if you aren’t paying the correct amount or incorrectly managing the tax component, you would be in breach of the law.
If you pay your employees cash in hand for the purposes of avoiding your obligations as an employer, you will be breaking the law and serious penalties may apply.
Meeting your obligations as an employer is vital to ensure that you are legally paying your employees cash in hand.
What Happens If I Commit Tax Fraud?
Committing tax fraud is a serious crime that may result in harsh penalties.
If you are failing to meet your employer obligations when paying your employees cash in hand, you may be committing tax fraud.
In accordance with the ATO, it is a tax crime to hide cash wages and avoid paying tax. This means that if you fail to declare your employees wages when you have paid them cash in hand, you may be committing a tax crime.
Tax crimes are taken very seriously and serious consequences apply. If you are found to be committing a tax crime you may face penalties, fines, criminal convictions and even prison sentences.
Further, tax crimes can seriously harm your business’s reputation, especially amongst current and future employees. Ensuring that your business is law-abiding and tax compliant is absolutely vital to ensuring your business’s success and livelihood.
I’m An Employee, What Are My Obligations?
If you are an employee being paid cash in hand, you too have obligations. If you notice that something’s not right you should raise it with your employer.
These include:
- Declaring your cash payment as income when lodging a tax return
- Please note that this includes tips, whether directly from a customer or from your employer
- Ensuring that you are receiving a payslip each pay cycle
- Ensuring that you receive a payment summary at the end of the year setting out your full earnings for the year and the amount of tax deducted
- Checking that your employer is making super contributions on your behalf.
As an employee, it is your responsibility to declare the amount of income you are receiving, especially when it is cash in hand.
If you are concerned that your employer is not meeting their obligations, talk to them first. If unresolved, you can contact the following resources for some guidance:
- Contact FairWork here
- Call the ATO here
Want to Learn More?
Determining your obligations as an employer when dealing with cash in hand payments can get a little confusing at times.
Don’t stress! We’re here to help and stay on top of any legal requirements as a business owner. Reach out to our team for a free, no-obligations chat at team@sprintlaw.com.au or 1800 730 61.
Chat to an employment lawyer, quick and online.
