Paying Employees Cash?

Discussion in 'Business Operations' started by greatlawns, Aug 16, 2007.

  1. greatlawns

    greatlawns LawnSite Member
    from NJ
    Posts: 34

    I have a theoretical question for everyone. I haven't done this, but figured that some of you have experience with it, so you may have some insight.

    Is it legal to pay someone cash for helping you out (even if it is a significant amount, i.e. over $600) and is that acceptable to the IRS? I mean if you do that, I guess you have 2 options. One is to give the person a 1099 as a subcontractor (though technically they are supposed to have their own business with their own insurance to be considered a subcontractor) at the end of the year. or Two, pay them straight cash (or check) and not claim that money that you paid them as a deduction with the IRS. Or can you?

    I know companies that pay people cash/check, but don't take out taxes and don't 1099 them at the end of the year, so they technically have no employees, but how do they do this legally?

    What do you all do?
     
  2. nobagger

    nobagger LawnSite Gold Member
    from Pa
    Posts: 3,065

    YES! Its ILLEGAL! You cant claim one of your guys is a sub contractor if he is using your equipment. For plowing and sidewalk snow removal you can 1099 them because its their equipment and time. Talk to an accountant thats the easiest way to find stuff like this out.
     
  3. Fantasy Lawns

    Fantasy Lawns LawnSite Bronze Member
    Posts: 1,913

    "Technically" ... they are breaking multiple laws (Federal, State & Local) .... & leaving themselves open to liability issues as well (Damages & employee injuries)

    One ....just one pissed off ex-employee can .... make a simple 1-800 phone call n really change that persons future

    Oorrr .... one .... pissed off Competitor

    You can pay em cash ....BUT ya gotta take the taxes out
     
  4. greatlawns

    greatlawns LawnSite Member
    from NJ
    Posts: 34

    Yeah, I use ADP for my employees, but you always hear stories about companies paying cash...I just don't know how they get away with it. More importantly, it makes it more difficult for companies that do it the right way.
     
  5. tthomass

    tthomass LawnSite Gold Member
    from N. VA
    Posts: 3,496

    You'll throw a flag if you are making money and can't show where it went come tax time.

    Now, slipping a cash tip to your help every once in a while as many of us probably do.......thats different then a salary that is cash.
     
  6. GraZZmaZter

    GraZZmaZter LawnSite Senior Member
    Posts: 740

    Technically .... i am nervous responding to this post .... this is a NO NO ... a big one ....
     
  7. varybarry

    varybarry LawnSite Member
    Posts: 24

    Definitely see your accountant as soon as possible, if you are considering this. I'm sure they will have a list of laws to show you.
     
  8. TSG

    TSG LawnSite Senior Member
    Posts: 444

    This is actually pretty easy
    First you have to know if legally they are employees or Subcontractors.
    99% are legally employees becuase they do not pass at least 1 of the 3 "employee rules"
    If Employee you must withhold tax, but you can pay him in cash,,,,,don't know why you would.
    If he is an employee and you treat him as as a sub and 1099 him, he could come back to haunt you later.
    If you pay cash and don't withhold you can't take the deduction.

    In my area there is a lot of cash flying around because employers think it is cheaper than matching withholding, increased workmans comp, ect .
    The employees won't say anything to anyone because they are often on welfare
    or receiving some kinds of government assistance.

    Talk to an accountant
    He will save you more $$$$$
    and you won't have to loose sleep over it
     
  9. LB1234

    LB1234 LawnSite Gold Member
    Posts: 3,210

    Not to mention the whole workmens comp audit that could come back to bite you in the arse.

    You may be paying him cash lets say its 1k per week over 30 weeks or 30k. You 1099 him at the end of the year. Then your WC insurance decides to audit you (mine does every spring) and you show your 1099s. They will then verify if your "subcontractor" has WC insurance...if not guess who is responsible? Yep, you got it. We pay 12 per 100 of payroll. that means I'd owe $3,600 to start the following year.


    Just happened to a buddy of mine but he owes $21,000.00.:cry: :cry: :cry:
     
  10. Turfbarber

    Turfbarber LawnSite Member
    Posts: 14

    You can pay with as an "independent contractor." You have to have an independent contractor agreement in writing first, similar to the ones realtors use with their brokers. You can then pay them cash and declare it on your taxes. The independent contractor must then pay the tax on it. I've done it several times. My attorney actually supplied me with the form ten years or so back and my accountant said it was fine. Unless something has changed back them, I did it for about a season until I could get my own plowing equipment.
     

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