Under-the-Table Payments may Prove Costly In the Long Run

“We will pay you under the table” or “Can you pay me cash and not put me on the books”. If you hear statements like these, you should realise the risks are horrendous for both employer and employee. There are countless employers paying wages “under the table” in the hope of beating the taxman. Most either believe the risks are minimal, or are ignorant of them. Equally, there are countless employees who are receiving cash and are not on the books. Some are given no choice in the matter. Others see it as a way of supplementing their benefits or avoiding paying family support.

For employees and employers alike, the risks of doing so are serious. For employers, a call to Inland Revenue will establish that the IRD may treat the wages received by the employee as net wages, and will recover from the employer not only the tax which should have been collected and paid to IRD, but also penalty tax. While you can take civil action against the employee to recover the tax you have had to pay, you may discover the employee is hard to find, or has no money. Further, while IRD will not promise you a full audit of your business, you would be wise to plan on one happening.

The law may be a pain, but the potential costs of evading it can be horrendous.

If you are in one of the remaining regulated industries such as road transport, then you also run the risk of prosecution and loss of licence if log books kept by the employee have been “doctored” to disguise the existence of the employee and the hours worked. Of course, the interesting time is when the employment relationship goes sour, with the employee resigning or being dismissed. Quite apart from there being a real risk of a claim for unjustifiable dismissal or constructive dismissal, the employer should also expect claims for holiday pay, the interest on it, and penalties, and possibly claims under the Minimum Wage Act.

Now it is well known that many claims to the Employment Relations Authority are settled through negotiation rather than litigation. In these circumstances and with the additional threat of an IRD audit, the employer is in the weakest possible negotiating position. It is unlikely that an employer paying wages under the table is going to keep wage and time records. Under the Employment Relations Act the employer is required to keep them. If he or she doesn’t, then a dispute with the employee over how many hours were worked will be decided in the employee’s favour, unless the employer can prove the employee’s claim to be incorrect.

How is an employer to handle a serious accident and injury to the employee, particularly an accident which provides good footage for television? This is a very public experience and will probably be investigated by OSH. ACC will also be involved. An experienced IRD investigator will more than likely pick up the story. By the time these agencies have finished with the employer, bankruptcy might be a blessing. For employees on benefits, the risks of discovery by WINZ and prosecution by the courts are serious and well known. IRD may treat your wages as a gross amount, and recover tax and penalty tax from you. Also, if you take your employer to the Employment Relations Authority, the fact that you were paid under the table can add enormously to your legal costs as more and more issues may have to be argued – were you a casual or permanent employee? Was the work permanent or temporary? Were your wages gross or net amounts? The law may be a pain, but the potential costs of evading it can be horrendous. Many employers have had to pay out thousands of dollars to employees who had been paid under the table. The cost of an employment agreement and the payment of taxes would have been but a small fraction of the costs finally incurred.