In some situations, employers might not be able to make payroll the standard way, such as through direct deposit or checks. For instance, a small business might experience technical issues with their payroll system or face financial limitations that prevent them from accessing traditional banking services.
As a result, paying employees in cash may seem like the only option. However, employers must be cautious when doing so to avoid significant legal penalties.
The consequences of making payroll in cash
When an employer pays employees in cash without following proper procedures, it can lead to several issues. The primary concern is neglecting to report wages and withhold taxes. In New York, employers must withhold federal, state and local income taxes, as well as Social Security and Medicare contributions. If these taxes are not reported and paid, the employer risks penalties from the IRS, the New York State Department of Taxation and other agencies.
Another potential issue involves workers’ compensation insurance. New York law requires employers to carry workers’ compensation insurance for their employees. Paying in cash without reporting payroll properly can lead to the employer failing to provide adequate insurance coverage. This can result in fines and liability for medical bills and lost wages if an employee gets injured.
Avoiding payroll penalties
It is entirely possible for employers to pay employees in cash while avoiding penalties. To do so, they must document all wages and withhold the required taxes. Employers should provide each employee with a pay stub that outlines the hours worked, pay rate, taxes withheld and other deductions. It is important to keep accurate records for both the employer’s and employee’s protection.
Employers must also report cash wages to the appropriate tax agencies and ensure that their workers’ compensation insurance is accurately reflecting their payroll. By taking these steps, an employer can use cash payments while staying compliant with New York’s payroll laws and avoiding costly penalties.
