More than 5500 workers dobbed in their employer for paying cash in hand this last financial year, using the Australian Tax Office’s tip line. Over 95% made this report anonymously.
The Australian Tax Office (hereafter, ATO) has estimated that across Australia, 1.6 million businesses are engaging in the practice for a variety of reasons, including hiding profits from the ATO, hiring illegal workers, or wanting to underpay workers. The industries are well known culprits, usually micro-business or small business in the hospitality, hair and beauty, construction, labouring, trade or freight industries. In its most recent report, the ATO estimates that over $3 billion in public revenue is lost to illegal cash in hand industries. The report this as a major concern, as this is effecting the provision of education and healthcare to the community.
For the past two years, the ATO has been putting an investigation blitz on these businesses in a bid to stem the tide of Australia’s growing black market cash economy, including sending out bilingual investigators to high risk businesses and industries. Some estimates suggest (with illegal trade removed) that the loss to the public purse is between 3-15% of Australia’s GDP.
While some workers do prefer to be paid cash in hand to avoid reporting to welfare authorities, or to allow flexibility in casual hours, or avoid paying money in tax, most are being ripped off of their rightful work entitlements, such as superannuation, leave entitlements, casual loading and sick leave. Many employees are paid well below the award rate and miss out on penalty rates, particularly in industries that top the list such as construction and hospitality, where weekend work is common. Most employees paid cash in hand are not prepared well for their future, with most not receiving any superannuation.
Australia’s tax and competition authorities are also concerned about the use of the cash in hand economy, as it allows shady employers to undercut legitimate paying businesses by offering lower quotes and tenders – making money for themselves and winning jobs by ripping off their own workers. This means that businesses that are scrimping on their tax requirements, and employees that are accepting cash payments, are hurting their future employment and industry growth. Industries such as hospitality and construction, where the practice is common, are fielding complaints from legitimate business owners who are contributing fairly to their employees and tax that it is impossible to keep up with businesses who do not pay fair tax and benefits.
It is important to note that paying in cash, and being paid in cash, are not illegal activities on their own. It is perfectly legitimate, for reasons of ease, avoiding bank fees or accounting, that cash may be paid to employees in lieu of electronic funds transfer. It is important however, that if you are being paid in cash, or you are paying your staff cash, that you are aware of your obligations and rights in terms of leave, penalty rates, tax rates, superannuation and welfare reporting. If you are being paid in cash, you may not realise, but you are opening yourself up to prosecution, fines and possible jail time if you are not paying proper tax. While it may feel like this is your employers responsibility, the law also states that you are responsible for knowing your tax obligations.
If you are an employer, who wants to pay their staff cash legitimately, this can be harder to do than using accounting software or electronic funds transfers. Make sure you keep accurate records of pay rates against the awards, hours worked and when, penalties applied, leave entitlements, and superannuation paid. This can be very confusing without the help of a skilled lawyer or accountant. However, it is important that you are meeting these obligations if you are paying cash in hand, as businesses are being increasingly prosecuted for underpaying their staff, and staff are being encouraged to report their cash paying employers.
If you are cash paying housekeeping or childcare staff, you may not consider yourself an employer, and that you are under no obligation to follow these rules. Unfortunately, you are considered to be an employer by the eyes of the law and the ATO, and you may be opening yourself up to prosecution if you are paying household staff with cash and not following other employment laws.
If you are either being paid cash in hand, or have been paying your employees cash in hand and don’t know your entitlements and responsibilities, an experienced employment lawyer can assist you. At Le Brun & Associates, we are experts in employment law, and can help you make sure that your businesses and work is fair and above board. Call us on (03) 9642 1800 for an obligation free, 30 minute consultation around your needs.