How to pay employees cash legally

To pay employees cash legally, follow these guidelines:

Withhold and calculate payroll taxes and deductions accurately.

Employers are responsible for deducting and calculating all of their employee taxes. This includes social security, medicare, and all relevant income taxes at the federal, state, and local levels. In addition, they are also responsible for withholding specific deductions.

This means employers must pay some employee payroll taxes using business funds. Penalties may occur if they send in payments late or send payments with the incorrect amount.

Payroll taxes are perhaps the largest issue employers must deal with when paying employees in cash.

The IRS, including some state and local governments, require employers to withhold taxes from their employee's paychecks; in other words, if an employer is paying their employees in cash, the employer must deduct the specific amounts that are due and pass them on to the proper agencies.

These agencies generally do not accept cash payments, so the employer must determine a way to send the money electronically. So while the employer may pay their employees in cash, they will still need to make electronic tax payments.

Be dedicated to recording work hours

Employers often have hourly workers, so they need an efficient way to keep track of employee work hours. This is a good business practice regardless, but it is especially essential in certain instances, like overtime.

Overtime is defined by the federal government as any hours worked in a given week over 40. This entitled hourly workers to time and a half pay. It is important that employers must still comply with this law when they pay in cash.

Have a regular schedule for paying employees

Even when paying in cash, it is best for employers to develop a standard payment process that includes specific dates and times employees will be paid.

This can be daily, weekly, bi-weekly, monthly, or some other iteration. It is critical that the employer establishes a consistent pay schedule when paying employees in cash.

Have a bank account dedicated to payroll

This will also come in handy when the employer needs to electronically transfer funds for things like payroll taxes. It is also a good way to stay organized with the cash payments employers give their workers.

This may seem tedious, but it is an effective way to avoid disputes and potential lawsuits when employers are paying their employees in cash.

Employers should develop a simple spreadsheet that their employees can sign with the following information:

• Date of payment

• Pay period in which employees are being paid

• List all employee names

• The payment amounts of each employee

• A box or cell for an employee signature confirming payment

Create payroll records and store them.

Employers may think they are avoiding heaps of paperwork by paying their employees in cash; however, while this is partially true in one or two respects, overall, it is actually the opposite.

Employers must comply with tax laws and other regulations and, to do so, they must create these documents on their own:

• Pay stubs

• Bank records, like statements and transaction reports

• Accounting records

• Hiring documents, like I-9, W-4 forms, and offer letters

• Time cards

Comply with payroll laws

If employers want to pay their employees in cash, they should do a good amount of research on payroll laws. This prevents any payroll compliance issues. Here are what some common payroll laws (some of these have already been mentioned) deal with:

• Minimum wage

• Overtime

• Worker's comp

• Tip reports and tip minimum wage

• PTO

• Paid sick leave

• Pay frequency

• Paid family leave

Lastly, paying employees in cash is legal; however, paying employees under the table is highly illegal and could eventually put an employer in jail.