Tempted to Pay Employees "Off the Books"? Here's Why You Shouldn't

Harris Beach PLLC

Does this situation sound familiar to you?

You are a small business with a few employees. You know of other similar businesses that pay off the books and have never run into trouble. You are contemplating doing the same. You rationalize that this is a part-time person who will do a specific job no more than ten hours a week. You figure, it is easier and cheaper to pay the person off the books – under the proverbial table. How much risk can there be?

You go for it. All is working out fine. But then, the employee is injured, on the job. Or (s)he is injured and now cannot complete the job without some form of assistance. The employee says she’s considering filing for worker’s compensation. You want to fire him/her because (s)he can’t work or perform any of the job functions. Here are a few issues that arise with your seemingly simple and easy “off the books” worker:

  1. The business has been paying the employee straight cash, not through payroll. So, the business has not been deducting required amounts for workers’ compensation, unemployment insurance, or disability. These are required by law (Workers’ Compensation Law §§ 50, 209(4); Unemployment Insurance Law § 560, et seq.) Because of this, while the employee has benefited from being paid off the books, (s)he has not paid taxes, and (s)he could still report the business to the United States Department of Labor and/or the New York State Department of Labor. Either or both agencies could audit the business which could lead to fines/penalties.
  2. The employee could also report the business to the IRS and/or the New York State Department of Taxation due to a failure to withhold and pay required taxes to each of the respective agencies. Employers are required to pay state and federal taxes. Failure to do so could very easily and quickly result in enforcement actions.
  3. If the business forges ahead and terminates the employee, it could face a discrimination charge either through an EEOC or NYS Division of Human Rights filing. The employee could claim (s)he was terminated due to his/her disabling condition. The business failed to accommodate the “disability.” In addition to any workers’ compensation issues (if the employee was injured at work) the employer must also accommodate disabling conditions in accordance with the Americans with Disabilities Act (42 U.S.C. § 12101, et seq.).

This short vignette is born from real facts and circumstances. Essentially, our simple recommendation is: adhere to the law. As much as paying a person “off-the-books” can seem attractive, it is ill-advised. Hire employees consistent with all applicable laws. Maintain their employment in the same manner. And ensure that any termination, even for those who are at-will employees, does not run afoul of any laws.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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