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Risks of Paying Employees in Cash

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Employee Management

Risks of Paying Employees in Cash

For a long time, some or all employees are paid in cash, since it’s the easiest and fastest method of payment.

Workpay
November 14, 2018
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November 14, 2018
8 min read
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Risks of Paying Employees in Cash

For a long time, some or all employees are paid in cash, since it’s the easiest and fastest method of payment. As technology continues to advance, businesses have shifted to other methods of payment such as bank transfers and direct deposits. This form of payment has been accepted by most employees, as long as the employer provides a pay slip that sets the tax, necessary contribution, and gross pay for the period. While it is not illegal to pay your employees in cash; nevertheless, it is not the best business practice for several reasons. Here are some of the risks of paying employees in cash.

Risks of Being Paid Salaries in Cash

Some of the risks of paying employees via cash include:

  • Employees paid in cash have no Federal Insurance Contribution Act (FICA) taxes withheld. As a result, many are denied social security earnings that could be used in calculating social security benefits. FICA taxes are the social security and medical taxes that must be paid by individuals and employers.
  • Some employers take advantage of paying their employees, less than the correct award wages for their relevant fields.
  • Likewise, employees who are not on the payroll are not eligible for unemployment benefits or worker's compensation.
  • Once an employee gets injured at the workplace, they are not eligible to file for a worker's compensation claim.
  • Chances of theft increases, since money in the drawers may tempt employees to steal.
  • Some of the employers don’t withhold income taxes based on the wages of the employees, concerning the number of allowances they claim on the form W-4.
  • The employer may not comply with payroll laws, and fail to report all wages to IRS when they get paid via cash.

Conclusion

Paying employees via cash is very risky nowadays. Therefore, businesses should embark on an appropriate payment method to reduce risks. Cash in-hand payment limits the employees from enjoying their social security benefits, and unfair wage payments. Signup with us and access our complete employee management and payment solution to enjoy seamless payment processes with just a few clicks.

Workpay
Workpay Africa

Workpay is a HR and Payroll software company that offers time & attendance, payroll, human resource, leave, expenses and remote teams solutions to businesses across Africa.

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