The reasons for wanting to pay employees in cash may be unique to each individual. While some feel better off counting money and keeping a manual account, others have easier access to cash and prefer to pay their employees with it.
Whatever the reason, it is certainly not a very common activity. For this reason, some people doubt how to legally pay in cash without repercussions or problems with the entities.
Is it legal to pay cash to employees?
We are so used to paying by deposit or check that the idea of doing it in cash makes us question whether it is a legal matter. The answer is yes: You can legally pay employees with cash.
The problem is that it is not always done legally. If the procedure is not carried out properly and accurately, it becomes illegal with serious consequences.
It is necessary to make all the deductions corresponding to the employee’s salary and execute the required payments from the different deductions to all the institutions.
When the payments are made in compliance with those mentioned above, they are carried out legally and will not represent a major legal problem with affiliated institutions.
How to pay employees in cash without legal repercussions?
Now that you understand the need to comply with the above requirements to carry out the process legally, it is time to show the necessary steps to achieve it and some recommendations to avoid problems.
Establish the appropriate salary corresponding to the hours worked
Although you are a step to be performed to pay the salary, whether in cash or by any other means, you should still include it in this list.
To know the gross salary to be paid to a worker, it is essential to know how much time per week they have worked, especially if they have worked overtime. Federal law states you must have worked 40 hours to start getting overtime payment.
The 40 hours in working hours corresponds to the time established during a whole week. In other words, overtime is paid if the 40-hour workweek is exceeded. Although, there may be certain variations according to state laws.
Make sure you are counting all taxes and deductions
Before proceeding to pay the employee in cash, you should ensure that you deduct all necessary payroll taxes for that particular employee.
It is adviseable to deduct everything from the more general taxes, such as Social Security (6.2%) and Medicare (1.45%), to those payable directly to other institutions.
IRS taxes should not be overlooked, along with all federal, local, and state taxes. It is necessary to know where the company is located for local and state taxes because they may vary by state.
In addition, the necessary withholdings for the worker must be deducted, along with garnishments and other data about the worker.
However, the process is not simple and is much less practical. To the letter, it is necessary to know all the possible deductions and general and particular taxes for each worker and where to go from gross to net salary.
Most of the time, paying certain taxes directly to the institutions intended for that purpose will be necessary. And in many of these cases, cash is not accepted. Therefore, eventually, another method of payment must be available.
Keep strict records
One of the biggest problems with cash payroll payments is that this type of payment is not recorded automatically like other methods. Therefore, you must do the recording manually for two important reasons.
Firstly, it is necessary to have all payroll payments recorded. Otherwise, when the company is due for an audit, and these payments are not recorded, the balance of income and expenses will be off.
And nothing is more cumbersome and risky before an audit than a situation where the balance sheet is not perfectly balanced and, above all, justified. In addition, audits verify the veracity of tax returns.
Another compelling reason to keep a record of cash payroll payments is the high possibility of encountering an employee who is not well-intentioned. They could claim to the state that you have not paid their salary.
And if you have not kept any record of where they have signed themselves and where the gross salary is shown together with the net salary, you will not have any solid basis to prove your innocence.
Although not all companies experience this type of situation, it is not at all far from reality. It is entirely possible. The employee must sign a checkbook with the receipt before handing the salary in cash.
Pay employees with the same frequency
As we have mentioned throughout the text, organizing cash payments correctly can be a very tedious problem, and, above all, where there is very little organization in this regard.
To ensure you are handling all cash payments correctly, do it with the same frequency and, if possible, simultaneously. It is enough to always make them on precise dates such as every week, fortnight, or month.
In short, it is not only a way to be better organized but also to avoid legal problems. Several states have regulations on the minimum and maximum time of payment. You should be aware of them.