Can I legally pay my employees in cash if it's on payroll?

June 02, 2023

Hello hello and welcome to Greedy Bitch, a podcast where groomers stop apologizing for charging their worth. I’m your host River Lee, founder of the Savvy Groomer.

Today's episode is sponsored by the Pay Masterclass, a 6-module masterclass where we teach you all about paying your employees legally.

Paying 50% is bull shit. We here at the Savvy Groomer have cracked the code of paying employees a liveable wage they’re happy with and creating sustainable profit for pet grooming business owners. Introducing the Pay Masterclass, a 6-module exploration on how to legally pay W2 employees, specifically designed for the pet grooming business. Busting myths while teaching you the skills and winning formulas you need to create a pay structure that actually works.

Let’s talk about today's topic:
Can I pay my employees in cash if it's on payroll?

Before going into the nitty gritty of paying employees in cash, let’s gain a better understanding of payroll practices in the pet grooming industry. Payroll refers to the process of compensating employees for their work, including aspects such as wages, deductions, tax withholding, and employment benefits. It is important for business owners to comply with local, state, and federal regulations.

Is it okay to pay employees in cash?

The short answer is yes, you can pay your employees in cash, but there are certain things you need to keep in mind. First off, you have to follow payroll laws and report all the wages to the IRS (that's the tax folks). This means you need to withhold the right amount of payroll taxes and keep accurate records of how much your employees work and how much they earn. You also need to make sure you're following unemployment and workers' compensation laws. It's important to remember that cash wages have to be taxed, and you have to report all wages, taxes, and declare them as income. This includes federal income taxes, Medicare taxes, Social security taxes, and state income taxes.

Talk to the pros.

Before you decide to pay your employees in cash, it's a good idea to talk to tax and legal professionals who know the nitty-gritty of this stuff. They can guide you through the process and make sure you're following all the rules and regulations. If you don't withhold taxes correctly, your employees might end up facing penalties when they file their tax returns. Plus, if you don't withhold FICA (that's social security and Medicare) taxes, they might not get the social security coverage they deserve.

Keep good records.

Keeping good records is super important when it comes to paying your employees. You need to keep track of when your employees got paid, how much they earned, and how much you withheld. Your state might also have requirements for pay stubs and record-keeping, so be sure to meet those too. If you don't have proper documentation of hours worked and wages earned, you could end up facing lawsuits. And without pay stubs, timecards, and other necessary paperwork, it's unlikely that you'll win in court if things go wrong.

Here are some steps you can take to maintain proper records:

Establish a system to track employee payments, hours worked, and any deductions. This can be done digitally or with paper-based records, depending on your preference and the size of your business.

Even if you pay your employees in cash, provide them with pay stubs detailing their gross wages, deductions, and net pay. This helps both you and your employee maintain a clear record of earnings and deductions.

Keep a cash log that records each payment made to employees. Include the date, amount, employee name, and any relevant notes. This log services as a reference for future record-keeping and can help resolve any discrepancies.

Track the hours worked by each employee. Require them to clock in and out or keep a record of their attendance. This will provide evidence of the hours worked and help calculate accurate wages. Even if you are paying straight commission or commission exempt you should still keep track of hours worked in case your employee accuses you of not meeting guidelines or not paying them overtime.

Keep receipts for any business expenses related to employee wages, such as payroll taxes, unemployment insurance, and workers’ compensation. These receipts will support your records and help during tax filings or audits.

It’s crucial to keep personal and business finances separate. Avoid mixing cash used for personal expenses with cash used for payroll. Maintaining separate accounts helps ensure accuracy and clarity in your record-keeping.

Periodically reconcile your records to identify any discrepancies or errors. Verify that the total wages paid align with your cash log and other documentation.

Stay up to date with local, state, and federal regulations regarding record-keeping requirements for payroll. Different jurisdictions may have specific guidelines you need to follow.

Why paying in cash can be tricky.

While it's legal to pay your employees in cash, there are a few reasons why it can be a bit tricky.

First of all, it's hard to keep track of cash payments and maintain accurate records.

Keeping track of cash payments and maintaining accurate records can be challenging due to several factors.

Cash payments often lack a paper trail or electronic record, making it difficult to track and verify transactions. Without proper documentation, it becomes challenging to provide evidence of payments, hours worked, and deductions.

When dealing with cash transactions, there is a higher risk of errors or discrepancies. Manual calculations can be prone to mistakes, leading to inaccuracies in recording wages, tax withholdings, or deductions.

Cash payments require meticulous record-keeping to ensure accuracy. It involves tracking not only the amount paid but also details such as dates, employee names, hours worked, and any additional information relevant to payroll compliance. Managing and organizing these records manually can be time-consuming and prone to errors.

Cash payments can lack transparency compared to digital payment methods. Without a clear record of cash payments, it becomes challenging to provide transparent and verifiable information to employees, tax authorities, or auditors when required.

Cash payments may raise compliance concerns, such as underreporting income or avoiding tax obligations. Without proper documentation and accurate record-keeping, there is an increased risk of non-compliance with tax laws, labor regulations, and employment standards.

Reconciling cash payments with other financial records, such as expense tracking and tax filings, becomes more complicated without proper documentation. It can lead to discrepancies in financial reporting and pose challenges during audits or financial reviews.

In some jurisdictions, there may be specific legal requirements for record-keeping and pay stubs, even for cash payments. Failing to meet these requirements can result in penalties or legal issues for the employer.

A payroll service provider is a third-party service that specializes in managing various aspects of payroll administration on behalf of businesses. Using a payroll service provider who pays your employees through direct deposit or paper checks is much safer. They'll make sure you're following all the laws and regulations related to minimum wage, overtime, taxes, and record-keeping.

Payroll service providers have systems and processes in place to ensure accurate calculations of wages, deductions, and tax withholdings. They have expertise in payroll compliance, including staying up to date with changing tax laws and employment regulations. This helps minimize the risk of errors or non-compliance with payroll-related obligations.

Payroll service providers maintain detailed records of employee compensation, tax filings, and other payroll-related information. They generate pay stubs and provide necessary documentation for employees’ earnings, taxes, and deductions. This helps with record-keeping, providing a clear paper trail for financial reporting, audits, and employee disputes.

With direct deposit or paper checks, there is a transparent and traceable payment trail for each employee. It ensures that employees have documentation and evidence of their wages and deductions, promoting transparency and trust. Cash payments, on the other hand, lack the same level of transparency and can be difficult to track and verify.

Payroll service providers understand and apply relevant employment laws and regulations, such as minimum wage requirements, overtime rules, and tax obligations. They help businesses adhere to these laws, reducing the risk of penalties, legal issues, and employee disputes related to non-compliance.

Payroll service providers implement security measures to protect sensitive employee data and financial information. With direct deposit, funds are electronically transferred to the employees’ bank accounts, reducing the risk of cash mishandling, theft, or fraud. Paper checks can be securely issued and tracked, providing a more secure payment method compared to cash.

Outsourcing payroll functions to a service provider frees up time and resources for businesses to focus on core operations. It eliminates the need for manual calculations, record-keeping, and tax filings, allowing business owners to dedicate their time to strategic activities.

To sum it up, paying employees in cash can be legal if you follow all the necessary requirements. But it's always a good idea to talk to the pros, keep accurate records, and consider using a payroll service provider. By doing these things, you'll avoid potential legal troubles and make sure you're playing by the rules.

Remember, if you have any specific questions or concerns, it's best to consult with experts who can give you personalized advice for your pet grooming business.

If you guys are interested in learning more about the Pay Masterclass, be sure to visit me at savvygroomer.com/pgmc. This is a 6-module masterclass where we teach you how to pay your employees.

Thank you all so much for listening to this podcast, Can I legally pay my employees cash if it’s on payroll. Be sure to visit me at SavvyGroomer.com to see my current opportunities to work with me in growing your pet grooming business plus more free resources for you to learn. See you in our community on Facebook - Savvy Pet Professionals! As always, Happy Grooming

Episode Transcript

Hello hello and welcome to Greedy Bitch, a podcast where groomers stop apologizing for charging their worth. I’m your host River Lee, founder of the Savvy Groomer.

Today's episode is sponsored by the Pay Masterclass, a 6-module masterclass where we teach you all about paying your employees legally. (Slide Two EPMC)

Let’s talk about today's topic:

Can I pay my employees in cash if it's on payroll?

When it comes to cash payments, it’s important to consider the legal and practical implications. While cash transactions are convenient, they can present challenges and potential risks for both the employer and the employee. Cash payments may raise concerns regarding accurate record-keeping, tax compliance, and the protection of employee rights. It’s essential to follow all applicable labor laws and taxation requirements to safeguard your business.
Is it okay to pay employees in cash?
The short answer is yes, you can pay your employees in cash, but there are certain things you need to keep in mind. First off, you have to follow payroll laws and report all the wages to the IRS (that's the tax folks). This means you need to withhold the right amount of payroll taxes and keep accurate records of how much your employees work and how much they earn. You also need to make sure you're following unemployment and workers' compensation laws. It's important to remember that cash wages have to be taxed, and you have to report all wages, taxes, and declare them as income. This includes federal income taxes, Medicare taxes, Social security taxes, and state income taxes.
Talk to the pros.
Before you decide to pay your employees in cash, it's a good idea to talk to tax and legal professionals who know the nitty-gritty of this stuff. They can guide you through the process and make sure you're following all the rules and regulations. If you don't withhold taxes correctly, your employees might end up facing penalties when they file their tax returns. Plus, if you don't withhold FICA (that's social security and Medicare) taxes, they might not get the social security coverage they deserve.
Keep good records.
Keeping good records is super important when it comes to paying your employees. You need to keep track of when your employees got paid, how much they earned, and how much you withheld. Your state might also have requirements for pay stubs and record-keeping, so be sure to meet those too. If you don't have proper documentation of hours worked and wages earned, you could end up facing lawsuits. And without pay stubs, timecards, and other necessary paperwork, it's unlikely that you'll win in court if things go wrong.
Here are some steps you can take to maintain proper records:
Establish a system to track employee payments, hours worked, and any deductions. This can be done digitally or with paper-based records, depending on your preference and the size of your business.
Even if you pay your employees in cash, provide them with pay stubs detailing their gross wages, deductions, and net pay. This helps both you and your employee maintain a clear record of earnings and deductions.
Keep a cash log that records each payment made to employees. Include the date, amount, employee name, and any relevant notes. This log services as a reference for future record-keeping and can help resolve any discrepancies.
Track the hours worked by each employee. Require them to clock in and out or keep a record of their attendance. This will provide evidence of the hours worked and help calculate accurate wages. Even if you are paying straight commission or commission exempt you should still keep track of hours worked in case your employee accuses you of not meeting guidelines or not paying them overtime.
Keep receipts for any business expenses related to employee wages, such as payroll taxes, unemployment insurance, and workers’ compensation. These receipts will support your records and help during tax filings or audits.
It’s crucial to keep personal and business finances separate. Avoid mixing cash used for personal expenses with cash used for payroll. Maintaining separate accounts helps ensure accuracy and clarity in your record-keeping.
Periodically reconcile your records to identify any discrepancies or errors. Verify that the total wages paid align with your cash log and other documentation.
Stay up to date with local, state, and federal regulations regarding record-keeping requirements for payroll. Different jurisdictions may have specific guidelines you need to follow.
Why paying in cash can be tricky.
While it's legal to pay your employees in cash, there are a few reasons why it can be a bit tricky.
First of all, it's hard to keep track of cash payments and maintain accurate records.
Keeping track of cash payments and maintaining accurate records can be challenging due to several factors.
Cash payments often lack a paper trail or electronic record, making it difficult to track and verify transactions. Without proper documentation, it becomes challenging to provide evidence of payments, hours worked, and deductions.
When dealing with cash transactions, there is a higher risk of errors or discrepancies. Manual calculations can be prone to mistakes, leading to inaccuracies in recording wages, tax withholdings, or deductions.
Cash payments require meticulous record-keeping to ensure accuracy. It involves tracking not only the amount paid but also details such as dates, employee names, hours worked, and any additional information relevant to payroll compliance. Managing and organizing these records manually can be time-consuming and prone to errors.
Cash payments can lack transparency compared to digital payment methods. Without a clear record of cash payments, it becomes challenging to provide transparent and verifiable information to employees, tax authorities, or auditors when required.
Cash payments may raise compliance concerns, such as underreporting income or avoiding tax obligations. Without proper documentation and accurate record-keeping, there is an increased risk of non-compliance with tax laws, labor regulations, and employment standards.
Reconciling cash payments with other financial records, such as expense tracking and tax filings, becomes more complicated without proper documentation. It can lead to discrepancies in financial reporting and pose challenges during audits or financial reviews.
In some jurisdictions, there may be specific legal requirements for record-keeping and pay stubs, even for cash payments. Failing to meet these requirements can result in penalties or legal issues for the employer.
A payroll service provider is a third-party service that specializes in managing various aspects of payroll administration on behalf of businesses. Using a payroll service provider who pays your employees through direct deposit or paper checks is much safer. They'll make sure you're following all the laws and regulations related to minimum wage, overtime, taxes, and record-keeping.
Payroll service providers have systems and processes in place to ensure accurate calculations of wages, deductions, and tax withholdings. They have expertise in payroll compliance, including staying up to date with changing tax laws and employment regulations. This helps minimize the risk of errors or non-compliance with payroll-related obligations.
Payroll service providers maintain detailed records of employee compensation, tax filings, and other payroll-related information. They generate pay stubs and provide necessary documentation for employees’ earnings, taxes, and deductions. This helps with record-keeping, providing a clear paper trail for financial reporting, audits, and employee disputes.
With direct deposit or paper checks, there is a transparent and traceable payment trail for each employee. It ensures that employees have documentation and evidence of their wages and deductions, promoting transparency and trust. Cash payments, on the other hand, lack the same level of transparency and can be difficult to track and verify.
Payroll service providers understand and apply relevant employment laws and regulations, such as minimum wage requirements, overtime rules, and tax obligations. They help businesses adhere to these laws, reducing the risk of penalties, legal issues, and employee disputes related to non-compliance.
Payroll service providers implement security measures to protect sensitive employee data and financial information. With direct deposit, funds are electronically transferred to the employees’ bank accounts, reducing the risk of cash mishandling, theft, or fraud. Paper checks can be securely issued and tracked, providing a more secure payment method compared to cash.
Outsourcing payroll functions to a service provider frees up time and resources for businesses to focus on core operations. It eliminates the need for manual calculations, record-keeping, and tax filings, allowing business owners to dedicate their time to strategic activities.
To sum it up, paying employees in cash can be legal if you follow all the necessary requirements. But it's always a good idea to talk to the pros, keep accurate records, and consider using a payroll service provider. By doing these things, you'll avoid potential legal troubles and make sure you're playing by the rules.
Remember, if you have any specific questions or concerns, it's best to consult with experts who can give you personalized advice for your pet grooming business.
If you guys are interested in learning more about the Pay Masterclass, be sure to visit me at savvygroomer.com/pgmc. This is a 6-module masterclass where we teach you how to pay your employees.
Thank you all so much for listening to this podcast, Can I legally pay my employees cash if it’s on payroll. Be sure to visit me at SavvyGroomer.com to see my current opportunities to work with me in growing your pet grooming business plus more free resources for you to learn. See you in our community on Facebook - Savvy Pet Professionals! As always, Happy Grooming

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