Question

Some of my employees do not have bank accounts and have asked me to pay them in cash so that they do not have to go to the trouble of cashing their paychecks. I would like to accommodate them. Is it legal to pay an employee in cash?

Answer:

The law does not require an employer to pay employees by check, nor does it prohibit the payment of wages in cash. However, many employers who pay their employees in cash do not keep records showing that they paid them the correct amounts under the law, and that they made the necessary deductions. Also, some employers who pay in cash do not give employees the equivalent of a paycheck stub for the employees’ records. As a result, these employers are exposed to claims that employees were not paid correct amounts for regular hours worked and overtime, since they cannot prove that they did in fact comply with the law, and they are subject to fines.

If you pay an employee in cash, you still must comply with the law. First, you must pay the correct amounts owed for time worked and be able to prove that you did. Additionally, you must make the necessary deductions required by federal and California law. In other words, the employee would receive in cash his or her net wages (gross wages less deductions). Paying an employee in cash does not excuse an employer from making the deductions required by law.

Furthermore, when paying an employee in cash, an employer must furnish the employee with an accurate itemized statement in writing showing the following: (1) gross wages earned; (2) total hours worked by the employee, unless the employee is a salaried, exempt employee; (3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on that basis; (4) all deductions; (5) net wages earned; (6) the inclusive dates of the period for which the employee is paid; (7) the name of the employee and his or her social security number (as of January 1, 2008, only the last four digits of the social security number or an employee identification number); (8) the name and address of the legal entity that is the employer; and (9) all applicable hourly rates in effect during the pay period, and the corresponding number of hours worked at each hourly rate by the employee. The employer must also keep a copy of this record in its files.

If an employer does not provide the above information to the employee, the consequences can be serious and expensive. The Labor Commissioner can submit a claim against the employer subjecting the employer to a fine of $250.00 per employee per pay period for the first violation. For example, if an employer has ten employees, and the Labor Commissioner discovers that during the course of five pay periods, the employer has not given those employees the itemized statements, he or she will be subject to a fine of $12,500.00 ($250.00 x 10 employees x 5 pay periods). That incident would be considered a first violation. If after that first violation the Labor Commissioner discovers that the employer still is not providing the itemized information to its employees, a claim will be filed against the employer for subsequent violations, and the fine will increase to $1,000.00 per employee per pay period. Failure to provide the itemized information to employees can also subject the employer to criminal fines, and even imprisonment for up to one year.

As you can see, paying employees in cash is legal but requires a little more effort on the part of the employer in calculating amounts due, deductions that must be paid, and in providing the written itemizations required by law. By complying with these requirements, employers can save themselves a lot of headaches and avoid being subjected to steep fines.
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