Table of Contents
In some circumstances, employers and employees may find that dealing with cash in hand is easier. For instance, perhaps your business deals predominantly with cash. In this case, it is easier to pay cash in hand to employees rather than visiting the bank to deposit cash. Equally, your employees may have their own regular cash payments to make. Therefore, receiving their salary as cash may be helpful.
In England and Wales, it is legal to pay your employees’ salaries as cash in hand. However, as an employer, you need to ensure you follow the rules surrounding this. Unfortunately, paying employees cash in hand has been associated with employers attempting to avoid legal tax obligations.
This article will explain what paying cash in hand means. It will also explain the rules about this, and your legal responsibilities as an employer when paying cash in hand. You must ensure you understand the rules. Otherwise, whether intentionally or by mistake you avoid tax requirements, you could find yourself in serious trouble.
What is Paying Cash in Hand?
Paying your employees cash in hand is often referred to as guaranteed take-home pay. In essence, paying your employees cash in hand means you give them their take-home pay after you have deducted any Income Tax and National Insurance Contributions in cash.
You can only pay your employees cash in hand if they agree to you doing so. They must be clear on what this means. They must understand what:
- their gross income is in comparison to their take-home pay;
- the process is if they are due a tax refund; and
- amount you will base any legal entitlements on, such as sick pay.
You can make cash in hand payments and intentionally not pay National Insurance Contributions. However, the conditions for doing this are stringent, and if you do this incorrectly, there are severe consequences. If you do choose to do this, you are still required to report your employee’s earnings to HMRC as you usually would.
What Are My Responsibilities When I Pay My Employees Cash in Hand?
As an employer choosing to pay your employees cash in hand, you assume many responsibilities. For example, you are responsible for ensuring that your employees know their legal rights before you pay them in cash. Furthermore, you must not mislead your employers. For instance, you must not persuade them that they should not apply for benefits such as tax credits as they get cash in hand payments. This is illegal behaviour.
Furthermore, you are legally responsible for ensuring that you still correctly deduct and pay any Income Tax or National Insurance Contributions due on their payments. You should do this in the usual way you do for other employees. Therefore, your employee’s cash in hand pay is their net pay rather than their gross pay.
You are also legally required to ensure that your employee receives a payslip each time you pay them. This must detail the following things.
|
Gross Pay |
This is your employee’s total pay before any deductions are due. |
|
Net Pay | This is your employee’s pay after you have made deductions. |
|
Variable Deductions |
This is made to their gross pay such as tax, student loan, pensions contributions and national insurance. |
The payslip can also detail other information such as the hours the employee worked, their tax code or the duration of time the payslip refers to.
When paying your employees cash in hand, you must still ensure that they receive the National Minimum Wage applicable to them.
You are also required to report to HMRC that you are making payments as cash in hand, free of tax to an employee. You should do this when completing your Full Payment Submission (FPS) and through your final submission at the end of the year. Guidance on reporting your payroll information to HMRC can be found here.
Continue reading this article below the formCall 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
Key Takeaways
Whilst it is legal for you to choose to pay your employees cash in hand, strict rules accompany doing so. Firstly, you must get an agreement from your employees before doing so. Furthermore, paying your employees cash in hand creates extra responsibility for you, as you must ensure that you make the relevant Income Tax and National Insurance Contributions for your employee before passing them their cash in hand salary as their net pay. You must also make sure that your employees correctly receive other employment benefits they are entitled to, such as holiday pay. Not following the rules correctly has serious consequences.
If you need help with paying your employees cash in hand, our experienced employment lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
It is legal for employers to pay their employees’ salaries as cash in hand. However, stringent rules surrounding how to do so apply.
If you choose to pay your employees’ salaries as cash in hand, you are still responsible for making relevant deductions first, such as Income Tax and National Insurance Contributions. However, it is possible to pay your employees’ salaries as cash in hand without deducting National Insurance Contributions. Notably, stringent rules govern when and how to do this.
We appreciate your feedback – your submission has been successfully received.
