Statistics recently released by the Australian Taxation Office has revealed that in the 2015-2016 financial year alone, 5573 employees complained to the ATO “dob-in line” that their employers had paid them cash in hand. This is double the number of allegations about superannuation being not paid correctly or at all, and eight times the number of complaints relating to incorrect classification of employment status (for example, that an individual is an employee not a contractor). And that’s just the employees who dared to make a complaint.
Following on from our recent article on the whistle-blower hotlines of both the ATO and FWO, we have received an increased number of enquires as to the legitimacy of cash in hand payments. In this alert, we explore the legality of cash in hand payments, and when you need to take care to avoid serious tax and underpayment issues.
What is cash-in-hand?
Cash-in-hand is the practice of paying employees directly rather than through a proper record keeping or payroll system, usually through cash to avoid a trail, with the purpose of avoiding the payment of taxation or other fees or charges. It is often encountered in relation to junior employees, who are frequently told that they’re not doing “real work” but rather are just “helping out” so they don’t need to be put on the books, but there are thousands of adult employees also caught up in the practice.
Cash-in-hand can be an attractive offer to employees, who don’t want to pay income tax, or may be secretly working in breach of their visa. Many employees don’t have a choice, but are simply told it’s a take-it-or-leave-it condition of employment.
Is it illegal to pay cash-in-hand?
Yes. There are several obligations on employers to keep accurate records of their employees, to pay appropriate payroll tax, to make superannuation contributions…the list goes on. Additionally, cash-in-hand is often less than the minimum wage payable under the otherwise applicable modern award, justified by employers as a better deal for the employee as it results in a greater amount than the employee would receive if they had been taxed.
It is illegal regardless of the identity of the worker. HR Assured has encountered businesses who paid family workers cash-in-hand for their work, genuinely believing it is was permissible.
So all cash payments are illegal?
It’s not necessarily illegal to pay an employee in cash, if such payments are properly recorded, taxed and included in reports to entities such as the ATO. Some modern awards allow for the payment of wages in cash form. However, this is not the case for all, so make sure you check your appropriate industrial instrument before engaging in the practice.
If you legitimately pay your employees in cash, you must ensure you still issue valid payslips within one working day of the payment being made, generate payment summaries at the end of the financial year, and make the correct superannuation contributions according to law.
For more information on cash-in-hand and what this means for you, clients should contact the HR Assured team. If you’d like more information about the benefits of becoming an HR Assured client contact us today for an informal chat.