Paying Employee Cash

[AnnaT]

I started a commercial photography business last year and it's now doing so well I want to take on a member of staff. I'm a sole trader but understand that I can do this.

I have someone in mind to employ and she has requested I pay cash on a weekly basis. I have no problems with doing that as it would also me easy for me. I will obviously be paying her NI and Tax and providing a pay statement with each payment but I wondered if there were any cons to doing this?

She will have a guaranteed minimum amount of hours with a set daily pay rate but there is potential for every week to be different (if this matters).

Any problems? I'm thinking mostly with regards to declaring her wages for my own taxes etc (I do my own book keeping then have an accountant draw up my end of year results - at least that's what I will be doing as this is my first tax year).

 

[MyAccountantOnline]

Hi Anna

Its not a problem to pay cash wages. Just keep a record of it as you would for any other cash expenses.

Dont forget you will probably need to register with HM Revenue & Customs as an employer. This may help - http://www.hmrc.gov.uk/paye/intro/basics.htm

Nicola

 

[AnnaT]

Thank you! I didn't realise I had to register! Will check that out.

 

[Zeno]

Thank you! I didn't realise I had to register! Will check that out.

Your employee does realise that you will be deducting Tax/NI?

This is often the reason the employee requests payment in actual cash. I would recommend that you pay via bank transfer to be honest.

 

[elaine@cheapaccounting]

Do remember that you will need to complete an employer annual return as well, in may.

There are a few responsibilities to paying staff - so you might want ot have a good read at the HMRC site first.

 

[Tom McClelland]

As long as you complete the HMRC paperwork, which isn't particularly onerous, there is no downside to paying the employee in cash if they find that more convenient. Just make sure that you give them proper pay statement/payslip showing the PAYE/NI deducted, and that you pay HMRC what you've collected (probably quarterly).

And you'll either need a P45 from your employee (from their previous employer) or get them to fill in a P46 (new starter without P45). And also give them a P60 at year end.

As others have pointed out you should register with HMRC as an employer. And once you've done that register for PAYE-Online so that you can easily submit your annual returns using commercial software like ours or the HMRC CDROM.

Any decent payroll software will guide you through your obligations.

 

[Zeno]

It must be the auditor in me talking but I maintain that in the absence of any good reason why the employee wants to be paid in cash (of which I can't think of many in this day and age) it is always better practice to pay by bank transfer.

In this case, I am not certain if the OP will have sufficient cash on hand to pay wages without requiring a trip to the bank.

My own view is that HMRC view cash wages as a red flag (regardless of the payroll process behind it) coupled with the every increasing idea that employers aid & abet benefit fraud by daring to pay employees who unbeknownst to them are claiming benefits.

I realise that none of this is the employer's fault and no harm can come to an employer operating the correct paperwork but surely avoiding the whole issue in the first place simply by making a bank transfer is preferable?

 

[elaine@cheapaccounting]

Maybe the employee is overdrawn at the bank and so needs cash to live.

 

[Tom McClelland]

Or sometimes the employee's account may be a joint account and they'd rather keep the money out of the hands of their spouse.

 

[Zeno]

Maybe the employee is overdrawn at the bank and so needs cash to live.

But then if they were working most other companies then that would be tough - payment is by bank transfer, no exceptions.

 

[Zeno]

Or sometimes the employee's account may be a joint account and they'd rather keep the money out of the hands of their spouse.

That's the amateurs way to do it. That way they know you do that.

What you do is have you wages paid into your own account first then transfer 50% via internet banking with the narrative being your employer's name to the joint account.

As far as your partner is concerned, you are just sadly underpaid.

 

[elaine@cheapaccounting]

But then if they were working most other companies then that would be tough - payment is by bank transfer, no exceptions.

and maybe that is why he / she is not

 

[Tom McClelland]

But then if they were working most other companies then that would be tough - payment is by bank transfer, no exceptions.

What has that got to do with the perfectly legitimate decision that some employers might make to legally accede with their employee's inclination to be paid in cash? Whatever the reason for the employee's inclination it has absolutely nothing to do with the employer. Cash payments also suit many employers, where cash business is taken if it can be used to pay the employees it reduces the business's exposure to carrying cash.

I'd be really interested if anyone can point at a single real world instance where an employer was keeping proper PAYE paperwork when paying in cash and it acted "as a red flag" to HMRC and caused the employer problems. Millions of people are still paid that way.

 

[Tom McClelland]

That's the amateurs way to do it. That way they know you do that.

What you do is have you wages paid into your own account first then transfer 50% via internet banking with the narrative being your employer's name to the joint account.

As far as your partner is concerned, you are just sadly underpaid.

Now you're assuming that the downtrodden spouse gets to open their own mail and/or has any kind of privacy in their internet access. Cash in their hand gives them more control (which may not be much, but even so) than any other mechanism.

Just MHO, YMMV, and with that I'll bail the discussion because I don't think anyone is going to have their mind changed about this.

 

[Zeno]

Now you're assuming that the downtrodden spouse gets to open their own mail and/or has any kind of privacy in their internet access. Cash in their hand gives them more control (which may not be much, but even so) than any other mechanism.

Just MHO, YMMV, and with that I'll bail the discussion because I don't think anyone is going to have their mind changed about this.

OK, this one was supposed to be a joke. I'll get my coat then...

 

[Tom McClelland]

OK, this one was supposed to be a joke. I'll get my coat then...

OK, . I did wonder if you were serious, but sometimes subtle humour needs a [/joke] tag.

 

[Zeno]

OK, . I did wonder if you were serious, but sometimes subtle humour needs a [/joke] tag.

I did try it myself at one stage but she just told me that I'd better put some overtime in.

 

[Tej]

I think the OP should insist on a receipt for the cash paid to the employee.

Else there is no telling what would happen a few months down the line.

just my 2 cents

 

[elaine@cheapaccounting]

OK, this one was supposed to be a joke. I'll get my coat then...

But we all know that you are not funny

 

[Zeno]

But we all know that you are not funny

Oh really? I'll have you know to when I enter a room people are already pointing and laughing at me, doubtless in anticipation of something funny I am going to say.

 

[KM-Tiger]

While the accountants sort out exactly which slush fund* you should draw the cash from, it's perhaps worth pointing out that apart from HMRC, there are the legal responsibilities of employment. You will need to draw up or have drawn up a Statement of T&C's covering pay, hours, holidays, sickness. notice etc, etc.

I wonder whether you might be better to not employ this person but get them to invoice you for their services. Slightly dodgy ground, but a lot less hassle than employment.

(* Slush fund - very 1970's, used to have half-crowns in mine!)

 

[elaine@cheapaccounting]

Oh really? I'll have you know to when I enter a room people are already pointing and laughing at me, doubtless in anticipation of something funny I am going to say.

Or the fact that your flies are undone

 

[Zeno]

Or the fact that your flies are undone

Don't worry. Cage may be unlocked but the beast is asleep.

 

[elaine@cheapaccounting]

I wonder whether you might be better to not employ this person but get them to invoice you for their services. Slightly dodgy ground, but a lot less hassle than employment.

With respect - very dodgy advice given HMRC guidance on employed v self employed:

http://www.hmrc.gov.uk/paye/employees/start-leave/status.htm

 

[elaine@cheapaccounting]

Don't worry. Cage may be unlocked but the beast is asleep.

Asleep - me thinks it died many years ago

That did make me laugh though - well done

 

[Tom McClelland]

I wonder whether you might be better to not employ this person but get them to invoice you for their services. Slightly dodgy ground, but a lot less hassle than employment.

(* Slush fund - very 1970's, used to have half-crowns in mine!)

It is a VERY poor idea to do this if the relationship is actually employment. Employment is determined by the facts of the relationship, NOT what paperwork exists between the worker and the employer/client. HMRC comes down like a veritable ton of bricks on an employer who tries to pretend that their employee is actually a contractor or supplier, just because the employee gives them invoices.