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While most companies pay their employees with consistent payments to their bank account, some pay their employees directly in cash. This is particularly common in the trades and with casual work. This is often assumed to be illegal, with the employer paying cash ‘under the table’ to avoid paying tax or other responsibilities, like holiday pay or other entitlements.

However, paying employees cash in hand does not necessarily have to be illegal. The key is that the employer must be complying with their obligations, no matter the means by which they are paying their staff. This article will set out this issue and explain how employers can ensure they are complying with the law.

Paying Cash in Hand Is Usually Associated With Tax Evasion

Unfortunately, tax evasion in New Zealand costs taxpayers billions of dollars each year. Paying ‘cash in hand’ has become synonymous with paying ‘under the table’, in other words, not paying any tax. All income must be declared to the Inland Revenue Department (IRD) and taxed. If you are an employer, you pay tax on behalf of your employees on the income they earn. This is called pay-as-you-earn tax.

If you pay your employees in cash, you must ensure that you pay this tax all the same.

As an employer, you must keep wage and time, and holidays and leave records that comply with the Employment Relations Act 2000 and the Holidays Act 2003. In particular, you must be able to show that you’ve correctly given your employees all minimum employment entitlements such as the minimum wage and annual holidays.

However, Paying Cash in Hand is Not Illegal

Just because you pay employees in cash, does not necessarily mean you are not complying with your obligations. While it is associated with bad employer practices, that does not mean that all employers paying cash are dodging tax or skipping their obligations to employees. While cash is often less convenient than internet banking, there may be reasons you want to pay your employees this way.

For example, when your employees ask you to do so. In that instance, you have a good faith obligation to pay your employee in the way they prefer.

The key is making sure that you are fulfilling your obligations to your employee, including:

  • making sure you are paying them the correct amount;
  • checking that you are paying the correct amount of tax; 
  • ensuring that you are paying KiwiSaver, if relevant;
  • checking that the employee’s sick and annual leave balances are up to date; and 
  • any other entitlements in the employee’s employment agreement or your company’s policies.

Steps to Make Sure You Are Complying With the Law

The key thing to focus on as an employer in terms of your obligations is keeping track of pay and entitlements for each employee. This required careful record-keeping. Good record-keeping:

  • makes sure that an employee’s pay and leave are correct;
  • prevents misunderstandings; and
  • protects both you and the employee if there is ever a problem.

Your employees have the right to know everything you are recording on their file and have the right to see these records.

When you are paying employees in cash, this should be noted in your up-to-date records. If you have fully computerised payroll software, maintaining these records is much easier, but you still need to make sure any changes to your employees’ hours or pay is recorded. It is harder if you keep a manual system, but this is possible too. Some of the records you should keep for each employee include:

  • name, address, age (if under 20 years) and the date they started working for you;
  • a copy of their employment agreement;
  • the kind of work they are employed for; and
  • the number of hours worked each day in a pay period and the pay for those hours. If these are agreed and they work them regularly then a statement of those usual hours and pay will be enough.

This can be recorded in:

  • the wages and time record
  • employment agreement
  • a roster, or
  • any other document or record normally used during employment.

Key Takeaways

It is legal to pay employees in cash in hand in New Zealand, so long as you are also meeting your other obligations like paying the correct amount of tax and providing employees with the right entitlements. Paying cash in hand is usually associated with avoiding tax, but this does not mean that paying cash in hand is itself illegal. If you are looking to pay your employees in cash, make sure that you are keeping good records, which should include information about the employee’s hours, pay, and other details. If you want to know more about paying employees cash in hand, contact LegalVision’s New Zealand employment lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

When is it illegal to pay employees cash in hand?

While it is legal to pay employees cash in hand, it is illegal when that practice is accompanied with tax evasion or when you do not meet your other obligations as an employer.

Why would an employer legally pay employees cash in hand?

Sometimes an employee may have a preference for cash in hand, particularly if they are not familiar or comfortable with online banking. When an employee requests this, an employer should pay them in the method they prefer.

If you pay employees cash in hand, do you also have to pay holiday pay or KiwiSaver?

Yes, if the employee is entitled to those employment entitlements, you need to provide these even if you are paying an employee cash in hand.

What happens if I am caught paying employees cash in hand and not recording this?

The Inland Revenue Department (IRD), responsible for tax in New Zealand, may bring charges against you. Depending on how severe the issue is, you may face jail time or hefty fines.

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