Are You Paying People Under The Table? Think Again.

Date Published: 
2010-10-01
Author: 
Christina Harris Schwinn

During tough economic times it is tempting to pay people under the table.  Why?  To save money.  By paying people under the table the employer avoids paying workers' compensation insurance premiums, the employer's portion of the social security and Medicare taxes, and federal and state unemployment taxes on the employee's wages.  Is it a good idea?  No.

Paying people under the table is risky and, more often than not, more expensive in the long run.  Why?  Because when caught, an employer risks having its job site shut down for weeks by the Department of Financial Services Florida's Division of Workers' Compensation.  If an investigator shows up on the worksite and discovers that there are workers on the site who are not on the employer's payroll, the investigator will likely issue a stop work order which shuts the job down until the employer provides two years worth of payroll records, accounting ledgers and other records relating to payroll and any individuals classified as independent contractors.  The records are audited to determine whether the employer failed to pay the appropriate workers' compensation premium for all employees on the worksite.  If it is determined that the employer failed to pay the total workers' compensation premium which should have been paid, the employer will be required to pay not only the unpaid workers' compensation premium for the last two years, but also a penalty of one and one-half times the unpaid premium, plus, potentially, a $5,000 fine per individual who was misclassified as an independent contractor.

What happens if a person who was being paid under the table is injured on the job?  Who pays?  The employer, but the employer is stuck with paying the medical expenses and potentially other benefits itself as there is no insurance.

What about employment taxes?  Is the employer off the hook if it fails to withhold and remit employment taxes?  The answer is no.  Not only could the employer be required to remit its portion of the unpaid Medicare and Social Security taxes, the employer could also be required to pay the individual's portion of the Medicare and Social Security taxes, plus penalties.  And, if it is determined that the failure to pay was intentional, those who had the authority and were responsible for withholding and remitting the employment taxes to the government could be held personally liable.

In addition to the above referenced penalties, an employer who paid individuals under the table who should have been treated as employees could lead to liability under the Fair Labor Standards Act for overtime, double damages and penalties.

While it is tempting to pay people under the table to save money today, avoiding the temptation saves employers both the frustrations and headaches that result from an audit, having a worksite shut down and the potential financial liability associated with underpayments.  For more information on stop work orders and the requirements under Florida's workers' compensation statute regarding independent contractors see http://paveselaw.com/misclassifying-employees-independent-contractors-can-be-costly.

In today's environment controlling costs is important, but doing so smartly is even more important than ever.  Paying people under the table is not only wrong, but it will also damage a company’s reputation in addition to creating financial liabilities that could far exceed the original costs that would have been incurred.

A note to the reader:  This article is intended to provide general information and is not intended to be a substitute for competent legal advice.  Competent legal counsel should be consulted if you have questions regarding compliance with the law. 

Questions regarding the content of this column or past columns may be e-mailed to Christina Harris Schwinn at christinaschwinn@paveselaw.com.  To view past columns written by Ms. Schwinn please visit the firm’s website at www.paveselaw.com.  Ms. Schwinn is a partner and an experienced employment and real estate law attorney with the Pavese Law Firm, 1833 Hendry Street, Fort Myers, FL 33901; Telephone:  (239) 336-6228; Telecopier:  (239) 332-2243.