Many businesses choose to pay their employees’ wages as cash in hand, rather than via bank transfer to their nominated bank account. While most assume that this arrangement is illegal, it will not necessarily be. Employers must meet their employment obligations, even if they pay their employees through cash in hand. This article will explain what these obligations are and how to ensure that you are paying employees cash in hand legally. It will also provide tips for employees to ensure that they are being paid fairly.

Paying Cash in Hand Has a Bad Name 

Paying cash in hand often has a bad name because some may assume that it is linked to poor business practices or tax evasion. Choosing to pay wages through cash in hand is common among small businesses in the hospitality and cleaning sectors. 

Some of these businesses pay cash in hand to avoid paying their employees entitlements, such as: 

  • superannuation;
  • public holidays; and 
  • weekend penalty rates. 

Some pay cash in hand to avoid reporting their tax obligations or paying superannuation. Employees who earn more than $450 per month before tax are entitled to receive superannuation payments if they are 18 years of age or over. If the employee is under 18 years old but works more than 30 hours a week, they must also receive super payments. You must also pay 9.5% of the value of the ordinary time earnings into the superannuation fund.

Employer Obligations 

When you pay cash in hand, just like when you pay into a bank account, you must provide your employee with a payslip within one day of paying them. 

The payslip must set out: 

  • the amount of pay (both gross and net, or before and after tax);
  • superannuation contributions;
  • the pay period; and 
  • the date the employee received the pay.

If there are other relevant entitlements (including penalties, bonuses or leadings) or deductions that apply, you should also include these in the payslip. You must also include your business name and ABN with the employee’s name. 

At the end of the year, employees must receive a payment summary that includes information about:

  • their total income earned;
  • the total amount of tax withheld; and 
  • superannuation contributions.

Payslip Checklist for Employers

To summarise, the payslip should include:

  • the employee’s name;
  • your business’s name;
  • your business’s ABN;
  • the amount of pay before and after tax;
  • the date of pay;
  • superannuation contributions;
  • the pay period;
  • if the employee works on an hourly rate, the payslip should reflect the number of hours worked at that rate;
  • any bonuses;
  • any loadings or penalty rates and the number of hours worked at those rates; and
  • all deductions such as tax or superannuation.

Receiving Cash in Hand Payments

As an employee, receiving cash in hand payments might be convenient for you or your employer. However, you need to ensure that you are not being paid less than the correct award rate relevant to your industry or under your contract. You should also confirm that your employer is paying your superannuation contributions to your super fund.

A serious risk you face is that if you are injured at work, there may be implications in relation to workers compensation insurance because you are considered ‘off-the-books’.

You should confirm with your employer that the pay you are receiving: 

  • reflects industry standards;
  • includes penalty rates and superannuation; and 
  • includes annual leave and sick entitlements if you are a part-time or full-time employee.

Payment Checklist for Employees

To summarise, as an employee you should:

  • ensure that you receive the correct salary or wage;
  • make sure your employer is making the appropriate tax deductions so you don’t end up paying excessive tax;
  • check that your employer is contributing to your superannuation;
  • check that you have worker’s compensation;
  • ensure you are receiving a correct payslip when you get paid;
  • make sure you receive a PAYG payment summary statement at the end of the financial year; and 
  • declare your income when you file your taxes.  

Key Takeaways 

There are many legal considerations regarding paying employees cash in hand. As an employer, you must ensure that you are complying with all your employment law obligations. Employees should also check in with their employer about any concerns they have about their employment entitlements. If you are an employer and have any questions about your employment contract or require legal advice about an employment matter, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

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