Written by Sattiraju Law Firm on August 10, 2020
When an employer pays “under the table,” it uses cash to pay wages. It is not illegal to pay wages in cash, but employers may use this tactic to avoid having to record the payment for tax and other purposes. In other words, the payment is ”under the table” so that no one (particularly government regulators) can see it.
Paying under the table to circumvent wage laws is not legal. Furthermore, it harms employees who lose out on important rights, and competitors that play by the rules. If you are being paid under the table, speak with a New Jersey employment lawyer today.
Why Do Employers Pay Under the Table?
Generally, employers like to pay in cash so they can avoid paying various taxes, such as payroll and unemployment insurance tax, as well as workers’ compensation premiums. Because the employer paid under the table, it can report that it is not employing the worker.
It is not the payment in cash that is the problem. Instead, the employer tries to hide the employer-employee relationship from the government. Employers have many obligations, which they can avoid by paying under the table.
Can Employers Avoid this Problem?
Yes. If the worker is an independent contractor, then the employer does not need to pay payroll taxes or unemployment tax. They also do not have to cover the person under their workers’ compensation policy.
However, New Jersey uses a strict test for determining whether a worker is really an independent contractor. New Jersey is wise to the fact that some employers would like to classify employees as independent contractors to avoid their otherwise legal responsibilities.
The fact that the employer labels the person as an “independent contractor” is not important. Instead, the state or court looks at the true nature of the work relationship. An independent contractor should have an independently-established business or trade and do work outside a client’s usual course of business or away from the client’s offices. An independent contractor should also be free from the client’s control about how and when they do the work.
A person is an employee unless the employer satisfies all of the above conditions. Some employers pay under the table because they know they cannot credibly classify a worker as an “independent contractor” but still want to avoid paying taxes.
How Are Employees Harmed by Being Paid Under the Table?
Getting paid in cash might seem like a great benefit, especially for those who are working without proper documentation or who cannot get a bank account. Cash is easy to spend. Furthermore, the worker can easily hide the income and not report it to the IRS.
However, workers are harmed when they are improperly classified as independent contractors. They can lose out on many benefits:
- They can lose out on the ability to collect unemployment insurance benefits.
- They can lose out on workers’ compensation benefits when injured on the job.
- They lose the protection of anti-discrimination laws.
- An employer can pay less than the minimum wage and refuse to pay overtime compensation.
Were You Paid Under the Table in NJ? Contact Us for More Information
If you are misclassified, please contact Sattiraju & Tharney, LLP today. Our lawyers have brought many successful misclassification cases, and we can analyze whether you have a claim.