Paying Under the Table: Is it Legal?
Concerned clients periodically contact our employment lawyers because they are worried about the consequences of being paid under the table.
“Paying under the table” is shorthand for paying an employee without deduction or withholding anything or reporting the payments. While some employers pay employees in cash, paying employees under the table in California is illegal.
If your employer is paying you under the table, you should first request that they begin paying you on the books as soon as possible. If your employer refuses to comply, the experienced employment lawyers at Starpoint Law can help you fight for a just resolution.
If your employer is attempting to pay you under the table, it’s also important to understand your rights and California law.This article explains an employee’s rights in this situation. If you are ready to talk to an attorney about your specific circumstances, contact Starpoint LC, Attorneys at Law, today.
What Does It Mean to Pay Wages Under the Table?
Paying employees their wages under the table, or “off the books” as it’s sometimes called, typically refers to compensating workers with cash without reporting the payments to the government. Employers don’t usually withhold income taxes or pay payroll taxes like Social Security and Medicare from these payments, which they are legally required to do. Paying under the table also means the employer pays an employee without giving the employee pay stubs or formally documenting the payments or, often, the employee’s employment with the company. In this way, the payments and the employee’s employment are untraceable.
Not only is paying an employee under the table illegal because it evades taxation, but it can also deprive employees of benefits and protections like unemployment insurance, workers' compensation, and social security credits. Because there's no official record of their employment or earnings, it can affect an employee’s ability to get credit, loans, or future work. It also undercuts public finances and can give dishonest employers an unfair advantage over those who follow the law.
Why Do Some Employers Pay Under the Table?
Employers typically pay under the table to save money. This practice, while illegal in many jurisdictions, continues for several reasons.
Tax Evasion
One primary motivation for employers to pay under the table is to evade taxes. By not declaring these payments, businesses can avoid paying employment taxes, such as Social Security and Medicare. This practice reduces their overall tax burden, albeit unlawfully. By not reporting your wages, your employer may also avoid paying their share of state and federal income taxes.
Reduced Labor Costs
Formal employment often comes with additional costs beyond just the salary or wage. These additions include overtime pay, contributions to workers' compensation, adherence to minimum wage laws, and providing certain benefits like state disability insurance, unemployment insurance, and health and retirement benefits. Employers circumvent these costs by paying under the table, effectively reducing their total labor expenses.
Flexibility and Simplicity
Small businesses or individuals hiring for sporadic or short-term work might opt for under-the-table payments due to the perceived complexity and paperwork involved in formal employment processes. Paying under the table offers a more straightforward, though illegal, way to compensate workers without dealing with bureaucratic procedures.
Some employers resort to under the table payments to hire workers not legally authorized to work in the country. This practice can include hiring undocumented immigrants. Hiring illegal workers under the table is an exploitative practice, leaving workers vulnerable.
Concealment of Illegal Activities
Criminal organizations often rely on cash payments to keep transactions and employment off the record, which helps conceal their illegal activities from law enforcement and regulatory authorities. Criminal groups might use under the table payments as a part of their money laundering schemes. Cash payments to employees or for services disguise the origin of illegal proceeds by integrating them into the legitimate economy. Paying under the table also helps criminal enterprises avoid detection by law enforcement agencies. Moreover, it gives criminal organizations a measure of control over their employees, as these workers are less likely to seek help from authorities due to their involvement in illicit activities or precarious legal status.
While these are some reasons employers might choose to pay under the table, it's essential to recognize that this practice has significant legal and ethical implications. It can lead to a loss of government revenue, deny workers legal protections and benefits, and contribute to a shadow economy that undermines fair labor standards. Moreover, employers and employees caught engaging in this practice can face legal consequences.
What if Employees Want Under the Table Pay?
The Fair Labor Standards Act (FLSA) mandates that qualifying employers pay at least the federal minimum wage and overtime pay for employees who work more than 40 hours per week. Local and state labor laws often impose additional restrictions beyond the FLSA. For example, in California, the mandatory minimum wage is even higher than the federal rate, and overtime mandates are more favorable to employees.While some employees are exempt from FLSA standards, employers must generally compensate employees for their time and pay state and local unemployment taxes for each employee. Congress designed this law to protect workers and ensure employers pay them a fair rate and compensate them fairly for their time.
There are instances when employees agree to under the table pay for their own reasons.
They may seek to save money by avoiding taxes, or they may not legally be allowed to work.
But there are downsides.Under the table employees risk their employers doing the following:
- Failing to pay part or all of what they owe the employee,
- Paying less than the agreed-upon wage,
- Delaying payday payments,
- Failing to pay owed overtime, and
- Deducting items they are not legally allowed to deduct.
Under the table, pay is not subject to FLSA standards, leaving employees unprotected. So If your employer pays you less than minimum wage, refuses to pay overtime, or engages in other labor violations, you will not be able to file a complaint or have access to legal recourse to pursue the wages they owe you.
Is It Illegal to Get Paid Under the Table?
In most circumstances, an employer paying under the table is illegal. Employers who pay employees under the table frequently violate the federal Fair Labor Standards Act (FLSA), which, as previously discussed, sets the federal minimum wage and overtime requirements. Furthermore, the Internal Revenue Service generally requires employers to withhold at least federal income tax, social security, and Medicare from their employees’ wages. Similarly, California requires most employers to contribute to unemployment insurance and the employment training tax, as well as withhold state disability insurance and personal income tax. Failure to comply with these requirements is tax evasion, which is a crime.
As described in California Labor Code section 226(a), employers must also provide employees with a statement of the following for each wage payment:
- Gross wages earned,
- Total hours worked,
- The number of piece-rate units earned, if applicable,
- All deductions,
- Net wages earned,
- The pay period,
- The employee’s name and the last four digits of the employee’s social security number,
- The employer’s name and address, and
- The hourly rates in effect during the pay period.
So, while paying in cash is not itself illegal, failing to provide the accompanying statement does violate the law. Furthermore, this documentation allows employees to comply with their tax reporting obligations and verify that they received all payments due to them. Without these deductions and statements, employees risk losing eligibility for Social Security Disability benefits, Medicare, and other benefits.
When Is It Legal to Pay Under the Table?
Sometimes, making unreported payments is legal. The money children earn babysitting or doing odd jobs may generally be paid under the table if the babysitting or odd job is infrequent and not the child's primary source of income—for instance, a neighborhood teen who babysits on some weekends.Small, occasional personal services where the amount paid falls below the threshold for reporting to tax authorities and certain stipends or per diems that are within the legal guidelines and correctly accounted for may also be okay. Likewise, it is typically legal to pay under the table for those earning amounts under the minimum reporting requirements set by the government.
In some of these cases, the payer may still have to keep records of the payment, and the person receiving it may still be required to report the income on their tax return. It's important to consult with a legal or tax professional to understand the specific laws and regulations that apply to your situation. Non-compliance with tax and employment laws can result in significant penalties and fines.
What Should You Do When Your Employer Is Providing Under the Table Pay?
If you are not being paid what you deserve or are concerned about your liability because your employer is paying you under the table, contact one of our experienced employment lawyers.
An attorney from Starpoint LC, Attorneys at Law, will meet with you one-on-one to discuss your unique situation and rights.
We know every client’s circumstances and needs are different. Our core values are empathy, integrity, and commitment, and we are here to help you.
Starpoint Law Can Help
Starpoint Law, LC, is here to help if you're having trouble with your employer. We know it’s crucial to hold those who’ve wronged you responsible. Moreover, we choose our cases carefully and only take on those we can win. That's how we've secured over $11 million for our clients. We're committed to treating you respectfully and will fight for your just compensation. Contact us today for a free consultation. We always put our clients first and are here to ensure you get the compensation and respect you deserve. At our firm, we do more than just provide legal services; we stand by you at every step. Trust us when we say we always look out for your best interests.
Aidin Ghavimi
Aidin is a partner at Starpoint LC, Attorneys at Law, and focuses on personal injury and employment law cases in and around Southern California. He earned his Juris Doctorate from the Loyola School of Law and his Bachelor’s from USC. Aidin’s primary goal is to bring justice to his clients and to ensure they are able to move on with their lives after a serious injury.
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