Let’s face it: Payroll is one of the most complicated and regulated areas of running a business. Between federal rules, state laws, and employee expectations, it can feel overwhelming. So it’s no surprise that some business owners (especially those just starting out) have considered the idea of paying someone “under the table.”
But here’s the thing: while it may seem simple in the moment, paying employees under the table is anything but easy in the long run.
What Does “Paying Under the Table” Really Mean?
Paying someone under the table usually means giving cash or unreported wages for work performed, without documenting the income or withholding taxes. While this may seem like a way to save on payroll taxes or paperwork, it’s illegal—and the consequences are steep.
Whether you’re handing out twenties from the till or cutting a check with no withholdings, if you’re not reporting that income, you’re creating a legal and financial risk for your business.
The Legal Risks of Under-the-Table Payroll
Let’s say it clearly: Paying employees under the table is illegal. The IRS requires businesses to report wages, withhold income and payroll taxes, and file proper tax forms.
Failing to do this can lead to:
- Fines and penalties from the IRS and state agencies
- Back taxes you’ll be required to pay, often with interest
- Criminal charges in cases of deliberate fraud
- Audits that go far beyond payroll and dig into your whole business
It doesn’t stop there. If an injured employee files for workers’ comp and you don’t have them officially on payroll? You could face lawsuits and be on the hook for medical expenses. Not to mention, failure to carry workers’ comp or unemployment insurance can result in separate fines and fees from your state labor board.
Employee Misclassification Makes It Worse
Some employers think they can work around these issues by calling someone an “independent contractor.” But if that person is really acting as an employee, this is another legal problem.
We break that down more in our blog post: Distinguishing Between Independent Contractors or Employees.
In short: If you control how, when, and where someone works, they’re probably an employee—and need to be on payroll. Misclassification can lead to its own penalties, back taxes, and even lawsuits if workers aren’t granted their rightful protections.
The Financial Risks Are No Joke
Still tempted? Consider the hidden costs:
- Loss of tax deductions for unreported payroll
- Higher future insurance premiums from undisclosed workers
- Reputational damage from lawsuits or audits
- Employee turnover when workers don’t trust the system
- Inability to provide benefits, which affects employee morale and retention
Even if your employees are okay with under-the-table pay now, that can change quickly. One unemployment claim, or one missed paycheck, and suddenly your books are under scrutiny.
Check out this detailed breakdown: Is Paying Employees Cash Under the Table Legal?
What Should You Do Instead?
You don’t need to go it alone—and you don’t need to fear payroll anymore.
A full-service payroll provider like Payroll Complete makes it easy to:
- Properly classify workers
- Accurately track hours and wages
- Withhold and file payroll taxes
- Stay compliant with ever-changing regulations
- Offer digital and direct deposit options to keep employees happy
- Prepare and distribute year-end forms like W-2s and 1099s
All of this helps you protect your business, retain employees, and plan for growth with confidence.
Let’s Do It the Right Way
Yes, paying under the table might feel like a quick solution—but it’s a shortcut that leads straight to trouble. With Payroll Complete, you get peace of mind, professional guidance, and personalized support from people who understand small business challenges.
Let us take payroll off your plate, so you can get back to doing what you do best.
Need help cleaning up your payroll process or making the switch from under-the-table practices? Let’s talk. We’re here to help you run your business the right way—without the risk.