A common technique used to pay immigrants who are ineligible to lawfully work and to pay lawful workers “offbook” in order to reduce reported payroll for workers compensation and other purposes is to pay workers wholly or partially in cash. Those employers paying in cash are often misclassifying the workers as independent contractors, in order to avoid customary payroll taxes. The misclassification of workers is the first step in potential civil and criminal actions by state and federal taxing authorities. The decision to prosecute or not is often based upon the “masking” actions used by the employer to hide the cash payments in other expense categories.MAsking is a form of “willful” conduct, (fraud) whereas misclassifcation on its own may not be.
One of the techniques used to disguise cash payments to workers is misclassifying payroll expenses as some other otherwise deductible expense, but there are many other metehods, particularly in “cash based” businesses.
The net effect of paying workers in cash is under reporting of payroll taxes, meaning under withholding, under payment of workers compensation permiums, and use of otherwise illegal labor. Potential penaltiee range from state and ferderal penalties for failure to collect and deposit payroll taxes, to knowingly filing false tax returns. to charges of money laundering.
If an employer has engaed in any of these actions of understating payroll and is not currently under examination, a domestic voluntary disclosure may be an appropriate approach to resolving civil and criminal exposure.
We at Millarlaw are experienced in the nuances of domestic and offshore voluntary disclosures. Our team can review and analyze your situation and recommend the most effective method of coming forward. We look forward to helping you.