As an employer there is a lot of grey area when paying employees and whether paying in cash is legal. Surprisingly too many, employers who pay employees wages through cash is actually a legal practice in Australia, however, there are requirements that must be met. The term ‘cash-in-hand’ is however considered illegal as this phrase as well as ‘off-the-books’ are used to describe work paid in cash to avoid employee entitlements, the law and government requirements.
Obligations of Employers
The Australian law under section 536 of the Fair Work Act 2009 requires employers to issue pay slips to employees, no matter the form of payment. Tax deductions must also be made from gross wages and should be remitted to the Australian Taxation Office (ATO).
Often payments in cash are used to avoid paying overtime rates as well as the minimum wage entitlement to employees. Employers should be cautious when paying cash and should ensure employees are paid as per the applicable award or national minimum wage if they are not covered under an award.
Despite being paid through cash, employees are still entitled to parental leave and related entitlements, annual leave, personal and compassionate leave, community service leave, long service leave, public holiday rates, overtime rates, notice of termination and redundancy and flexible working arrangements depending on their employment status.
Wages can be paid by one or a combination of cash, cheque, or electronic funds transfer. The Fair Work do require employers and employees to sign a record to confirm the amount of money that has been paid each pay period when wages are paid through cash. Fair Work is not in favour of cash payment as it is hard to track, however, as long as there is a record kept, this activity is considered legal.
In regards to pay, hours of work and leave entitlements, it is a legal requirement for employers to keep a record of each employees following details for seven years:
• Pay rate
• Gross and net amounts paid
• Deductions from gross amount
• Details of any incentive based payments, loading, or penalty rates
• Overtime worked
• Hours worked
• Leave taken
• Leave accumulated
• Amount paid, pay period, date(s) paid, name of super fund and reason employer paid into the superfund.
If records are not kept or are found to be incorrect, Fair Work will conduct an investigation and inspectors are authorised to give employers infringement notices. If the failure to meet requirements set out by Fair Work are considered serious, wilful or repetitive the employer can be taken to court. The maximum fines payable from an infringement notice are $540 per contravention for an individual and $2700 per contravention for a body corporate.
Advantages of legal cash wages
Although society is quickly changing to processing everything electronically, there are still some advantages to using a cash payment method for employment. Businesses can use the cash payment method for convenience as well as to save money on electronic overheads.
Risks to paying ‘cash-in-hand’
If employees are being paid ‘cash-in-hand’ and are not declaring it to Centrelink, there is a high risk of Centrelink ending the person’s payments as well as requiring them to repay any monies they believe is owed.
If an employer fails to pay employee entitlements, there are risks of having to repay all entitlements plus compensation as well as fines for non-compliance. Previous cases have found employers having to pay record penalties of over $400,000 for not complying with regulations.
The ATO offer an opportunity to employers to notify the ATO of any oversights that may have been made when meeting tax or super obligations where the penalties and interest charges which would normally occur will be reconsidered.
If your company is paying employee’s cash, employers must ensure payments are compliant under the relevant awards, enterprise agreements, national minimum standards and regulations.
To ensure your business is compliant call the National Retail Association Hotline on 1800 RETAIL (738 245).