Under-the-Table Pay Is Unacceptable

The federal government should crack down on businesses that pay employees under the table, because it needs the tax revenue. Pro or con?

Pro: Everyone Has to Contribute Taxes

The "underground economy" hurts government and private businesses. It directly affects government’s ability to fund public services such as education, public safety, and human services. It also undercuts legitimate private businesses. It is imperative—especially in hard economic times—for state governments to take action by holding tax cheats accountable.

Employers who pay an employee under the table or misclassify an employee as an independent contractor, do not pay their allotted taxes and avoid other payroll obligations. This results in billions of dollars of lost revenue to state governments that would be used to provide essential public services.

The underground economy also puts law-abiding businesses at a disadvantage in the marketplace. Tax cheats gain an unfair advantage by not paying their share of taxes and fees. This can result in legitimate businesses shutting down.

Consumers are also affected by an underground economy. In many cases, consumer services such as home repairs and improvements are performed without proper licensing, bonding, insurance, safety, or quality—leaving little or no enforceable remedy for disputes.

In Oregon, the Department of Revenue has determined that unreported income amounts to an $18.3 billion underground economy. That represents 11.5% of Oregon’s total gross domestic product. The $1.25 billion in lost revenue to the state results in higher taxes for law-abiding citizens.

It is time for state government to be accountable to taxpayers and law-abiding businesses by enforcing our tax and employment laws.

Con: Show Compassion for Low-Paid Workers

In our haste to prevent employers from making under-the-table payments, we forget about the unintended consequences of such a crackdown on low-wage workers and the self-employed. Worldwide, 1.8 billion people are part of the "informal workforce," according to the Organization for Economic Cooperation & Development.

U.S. workers who may be paid under the table include our nation’s 7.4 million food and beverage workers, whose median wage is $7.14 per hour including tips, and maintenance workers, whose median annual income in 2006 was $19,930. In the U.S., 10.7% of full-time service workers were classified as the working poor, according to the Bureau of Labor Statistics. The reality for all of these people, and those they work hard to support, is that every penny counts.

Opportunity@Work recently released the Family Bottom Line, a study charting how much it takes without government assistance for families to get by, relative to where they live. The study found that a family with two adults and one preschooler in Omaha needed $33,191 a year. And we know from experience that many families fall well below this line (even as some point to Nebraska’s high employment in the face of this recession).

While we would never advocate tax evasion, we know a growing array of families that don’t make enough despite their hard work. Punishing low-income and low-wage Americans trying to support their families, by asking them to carve out even a percentage of $20,000, could send them over the edge into homelessness, a cycle of poverty, or worse.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

Terrell

Until I read this piece, I had never really considered the impact of cracking down on under-the-table payments. If I weren't making a living wage, I couldn't imagine I would be able to afford sacrificing even a single cent.

Sonal

Ms. Bailey Fowler makes a very good point. Obviously those of us who have access to financial institutions should pay our taxes--but you cannot simplify this issue. Hasty legislation would set back the many families who can barely scrape enough of their income together to put food on the dinner table. Rep. Holvey and Sen. Prozanski, I hope that you will consider leveling the playing field for the informal workforce with any proposed legislation.

TOMW

You're never going to get rid of all the employers paying their employees "under the table" anymore than you'll get rid of all the companies hiring illegal alien immigrants.

It's just a better deal for all concerned. The employer doesn't pay payroll taxes or unemployment insurance. He probably still has to carry some form of liability insurance, but it won't cover worker's compensation.

The employee doesn't have to pay income or Social Security taxes, unless he declares the income at the end of the year, which would defeat the purpose of the exercise to begin with. Unless the employer classifies the employee as an independent contractor (which, with certain restrictions is legal) and submits to him and the I.R.S. a 1099-Misc. for the compensation paid, nobody will ever know.

The downside for the employer is that he cannot deduct the wages paid to an employee unless he submits the 1099-Misc.
But the problem is systemic. If the taxes and other requirements were not so onerous in the first place, more would comply with the law.

In countries with what is termed economic freedom," nations with the most have the highest obedience to the law. Countries that rate poorly in freedom have the largest "underground" economies.
People are going to do what is necessary to make it economically. If that means violating the law to eat, that's what's going to happen.

Squeezebox

Some people are paid under the table because their employer simply can't afford all the taxes and now health insurance burdens. Some workers want under the table payments so they can still collect benefits. Some take under the table because that's the only work they can get.

Bert

"Under the table" translates as: Illegal. When employers shade the law, start having people in their employ that have no record whatsoever, for one thing that paves a path for people that are actively looking to break other laws, and eventually you get into bribery, turning a blind eye, "business-as-usual" acceptance of habitual blithe disregard for any kind of labor laws, and then eventually someone gets hurt or killed on the job, or the immigration authorities have to shut the place down, or there's some other kind of public risk or menace associated with the place, so maybe it's better to have businesses that operate within the law and state government that sees to it that no associated costs become so prohibitive as to motivate people to consider other means of doing business.

On the other hand, I think we're witnessing a California-like growth in size and scope and cost of government--we've seen fuel, housing, and food costs grow and grow and grow, unions vying for benefits and compensation that just isn't there, passing the "savings" along to their neighbors, and the stark fact of people trying to support themselves by some means in a state that is #3 nationally in unemployment. Some Oregon counties rank even higher than that, with one I believe in excess of 21%. Jobs mean money, and when people have been unemployed long enough, they start seeking other means of supporting themselves that don't even have anything to do with working at all, so legal, or not-so-legal, part-time, full-time, overtime, people need a means of self-support or they end up moving in with the relatives, in jail, in the hospital, in the dole queue, and even Obama probably isn't ready to cut Oregon a check for $18 billion dollars...besides, California is going to annex the place, and then we can all ride their welfare system. Woohoo.

steve Bangalore

Under the table pay has been going for decades--get real. Maybe you have truck and move people cheaply. Or you work part time for an individual for cash. Gee, that flea market business is all cash, or lawn work, house cleaning. The list is endless. As long as it is cash and you don't deposit in an account, the chance of getting caught is minimal. Go to any illigal alien labor zone, wave some cash, and you have workers. How many carpenters, plumbers, nurses work extra for cash? Gee, I bet even Businessweek writers have cash jobs, too.

Joseph Fetzer

I can't believe people would actually condone this illegal behavior. It is not fair to the people who pay their unfair share of the taxes because others are not paying. Also, these people can then double dip, i.e., "I don't make any money--look at my tax return" and then they get all the social services like food stamps and Medicaid because they are lying about their income. If people want to go out to dinner every night then they should pay a little more so people pay their taxes. I wonder how many are illegals anyway.

Aditya - New Delhi

From a foreign perspective, it's a horrible practice, but no matter what, one can always change the terms from cash to country club memberships, expensive dinners, gifts, (illegal perks as well), favors or discounts, etc. I don't think that it's possible to completely remove it unless taxation is reduced or that the the penalty becomes close to that of a life sentence or even death.

Asia is far worse and the implication is that the Chinese and Indian economies are actually about twice their actual size since a large chunk of the business is done in cash.

La Larry

Ok. I Listened to the yea- and nay-sayers.

Can only see one solution. Elimination of all currency, only electronic transactions.

Everything is run through the One World data base, and all is revealed. Big Brother knows all, tracks all, and controls our Lives. We can come up with some cool name like the World Patriot Act or something.

I cannot imagine the young man that mows my grass once a week accepting a Mastercard. I would love to see the look on the cartel dealer's face when I ask him if he accepts American Express for a truck load of marijuana.

How much freedom are you willing to lose? Cash is as much a freedom as to bear arms.

Let's quit picking on the family trying to feed and house their family. Let's go after the big fish.

Companies all over the globe are downsizing to balance their sheets, (jobs lost). Are the governmental bodies?

The parasites who exist off our tax dollars need to be looked at very closely. Downsize, you pay their wages. What do they do, what do? They get paid--what's their perks? How many individuals are you paying to support them? There are no laws because they create the laws. It's too big. We have created a monster.

A cleansing of Wall Street is not enough. We must move forward to Washington and remove the leeches that are sucking the life blood of the country I Love.

I'm 60 and it's good to be back to the 60s. This should be a tribute to our generation, our last stand. United we stand, divided we fall. We knew then as we know now, our government needs reform. We attempted, but backed off of our obligation.

We have a good leader, but he needs to hear our words and feel our support. If you were with me in the 60s, be with me here.

POPS


Seeer

The government so-called work force is the biggest rip off of all. High pay, high benefits, tons of overhead, crazy work rules, lots of days off. Government is the least efficient part of the economy and the more they are involved in a private industry the more inefficient it becomes. Health care is but one example, and look what they did in enforcing banking and financial laws. The U.S. is collapsing fast and picking up speed. For the government, there will never be enough money to waste. There are no morals anymore, so why pay the government?

random

"How much freedom are you willing to lose? Cash is as much a freedom as to bear arms."

Right. Because bearing arms will protect you if a government gets too uppity and decides to use its tanks, missiles, and bombers to subdue the population. That's when your 12 gauge will come in handy.

But in all seriousness, when it comes to under-the-table pay, we can't say that the law applies to some people but not others because they don't make enough money. Why don't we just make taxation easier on low income workers so instead of breaking the law, they can get tax relief and afford some of the basics they need?

Of course, we'd need to make up for lost revenue and get past the screaming fits that helping people on the bottom of the economic ladder is socialism and Communism and fascism and whatever -isms will be thrown out on Fox News during the debate.

Strategery

Getting paid under the table is wrong, but as usual, the government wants to stick it to the little guy--like the person doing odd jobs for cash on the weekends or bartering (yes, you're supposed to pay taxes on that), or selling a used car and not reporting "gains" on it. If we go after people that are paid under the table, it is only fair that we go after the big guns too--like corporations and individuals that built tax shelters and negotiate reduced tax bills with the national and/or state governments. In addition, we should raise the tax rates for investment income and remove special corporate tax breaks and welfare--including incentives to outsource.

Retired Laborer

The individuals and employers that are playing the under the table game are the first in line for welfare handouts, medical care for their families, medical care for on the job injuries, and all the other 'free' services like education of their children along with the police and fire protection they expect.

We need to stop all under the table payments. Add mandatory fines, jail time, and long term community service for all employers that continue the practice. This would start with the first offense.

Larry in VA

I thought this was illegal. What's the question?

Until the law is changed, it's illegal. If someone wants the law changed, take it to Congress.

Is the question whether to change the law?

Strategery

How is getting paid under the table any different from unregulated "investments" and "financial instruments"?

Both skirt the laws and the taxes that are due, both operate outside of established accounting principles and regulatory framework, both are unregulated and have little accountability--and both practices drive people and businesses to seek government handouts.

angela

Illigal is just that--illegal. Our goverment isn't enforcing the laws we already have in place.

cindy

While many under the table people make little money, let's say for example day laborer in CA gets 12-15 dollars per hour. They don't report the income and now they are eligible for rent subsidies, food subsidies, earned income credit from taxes. In the end they are making more then those who are paid $25 per hour and paying taxes. It is important that everyone's pay is documented--remember 50% of Americans pay no federal income tax at all. But many under the table contractors and landscapers are able to partially report income on their taxes, onces again making them eligible for programs and EIC and student grants for their children.
The tax system should not be a burden only to those who get paychecks.

ACrowley

Well, it's really not good to see out of several worker (dispatchers) 4 of 6 are getting paid under the table and get checks of retirement or disability while one of the dispatchers gets 1 day a week and he has no other income. It's not cool to see that happen--that's at least 4 jobs in one company that could go to 4 people that don't receive retirement or disability that's under the table disadvantage if the tax man was calling 3 of these guys would quit.

foolish nation

You want me to pay taxes? For what? For these fools running the country under the stewardship of BO, to spend like drunken sailors? I like Obama as a person and orator. I loved his autobiography. But the way he is preparing to run this country to ground with his health care agenda makes me sad. IF there is a problem with health care costs rocketing, don't you need to figure out why before you add more folks into the system? Utter dimwitness.

Paul Short

As long as the Obama administration and liberals in Congress continue promoting anti-business and socialist practices, underground business will blossom.

As in the former Soviet Union, black markets will develop and spread in order to bypass the oppressive US Kremlin.

MikeT

Paul and Floyd represent an Oregon legislature that is out to increase state revenue at any cost. Oregon has a minimum wage that is higher than the federal and that increases every year. But an employer is not allowed to include tip income when measuring the amount paid. Doing so would have assured tip income was counted in the taxable income stream. The legislature rejected that idea. Someone needs to refresh my memory on the definition of a hypocrite.

Norman T

Help! My college student son took employment for minimum wage plus used his own car to deliver pizza. Over the next couple of months, the owner convinced my son that under the table payment would work better. The owner assured him this would be best. Now five months later, the owner owes him over $1,000 dollars with promises daily to catch him up on his pay. With me just finding out about this, I don't know how to deal with this employer that owns three pizza places. He refuses to pay my son and keeps giving him the run around. Please advise me as to how to go after this jerk. Oh, I don't blame my son for accepting cash for payment because he really believed and trusted this middle-aged business owner. I want to go after this jerk--can someone please help me give this guy what he has coming so the next young person won't get hurt by this type of illegal business practice?

J Ess.

Flea Markets are not under the table pay. I've worked flea markets for 7 years. We had to acquire a tax ID license and we now pay taxes on every item we purchase and sell quarterly.

Jess H.

Under the table? Yes I think it all sounds great but in the end how can someone get employed under the table and then right from the start trust that this individual will pay them all that is owed? I was recently offered "full time" work for a business, on my second day I noticed that I still did not have to clock in and I had yet to fill out any W2's, so I went to my boss, and she said "Oh, this is under the table."...So if she could not even tell me that from the start, she is not having me clock in and she just expected me to work...how can I trust that I would get my money? Yes, times are difficult at the moment, probably the hardest I have ever delt with but the truth is, we don't know these people on a personal level so how can I trust them with "my" money? Maybe paying taxes in the end is better because atleast we are guaranteed the money we honestly made.

your mom

Suppose I work under the table?

Brada

I know a guy who lays his guys off in the winter months, and they legally collect unemployment but then they are brought back to work while collecting unemployment and are paid in cash under the table. There are weeks when they reach 40 hours under the table plus unemployment. He also pays them anything over 40 hours in cash, off the books. What is the most that can happen to either him or his employees?

moname

Jess H.,
Just so you know, if anyone is not getting payed in cash daily for "under the table" work, they need to demand that they do receive cash daily for their services or separate from that employer as fast as possible. Period. If you are not getting daily payments in actual, physical money (not checks) when working "under the table," you are begging to be exploited. Demand your money immediately.

unpaid-elf

Sometimes the reason behind taking an "under the table" job goes beyond the avoidance of paying taxes. Just being able to work at all is a privilege that most people take for granted. Sometimes the chance to earn money is enough to motivate someone that would be considered "unemployable," not just those who don't have a green card, but what about the people who have made mistakes in the past and despite their education and experience, (and charming personality) never have a chance when the background check lands the resume in the circular file.

So you take the job, at risk of being taken advantage of, then you are. Sitting for 2 1/2 weeks with no pay right before Christmas and your boss who claims to be "strapped" is taking a trip for the holiday. There is a tree, but what do you tell the kids when there are no gifts underneath? What is the recourse? If I make a commotion, I will just lose the job entirely. If I don't, I starve. How can I "demand" my money when the boss can just act like I'm nuts and she doesn't owe me anything?

BJ

I went to work with Liberty Tax last year as a waver. We were told we were being paid under the table. Would not be reported to anything and not get a 1099. Now she has decided this year since she can't claim it because I made $2500.00, she is going to 1099 me. She lied to me. What can I do about it legally?

GB

I got a good laugh at who is against "under the table" payments...POLITICANS...Oh, that's rich!

Dave

This whole problem of tax evasion wouldn't be a problem if taxes didn't exist. I mean, high taxes are only a greater incentive for people to cheat on them.

We get taxed when we get money, and we get taxed when we spend it. Personally, I won't mind a 10% income tax at all. But when it hits the 25% bracket, it's a little outrageous. I have to pay 25% of my pay (which isn't that much for that bracket), but yet I'm not eligible for things like tuition assistance for college. I get to pay taxes, but I see little of it in return in the form of government services.

No wonder people like being poor. They don't need to work, don't need to pay taxes, and on top of it all, they get financial assistance from the government.

No wonder our country is circling the drain, we're punishing those who contribute to our great nation and rewarding those who don't.

Big Al

If you really want under-the-table pay eliminated, then please pay my taxes of $15k annual. I make 27k annual, which is a good job until taxes hit.

Remember: Businesses don't pay business tax, customers do; apartment owners don't pay property tax, tenants do.

When we include all taxes, the actual rate is near 59% of your income. "Another day, another 41 cents."

Also, when corporate taxes increased in 2009, 3-dozen people lost their jobs at my workplace.

Government employment as public service is not there for the perks because it is PUBLIC SERVICE; it's paid for by us taxpayers.

Alpco

Anyone that buys anything over-the-table does contribute to tax revenue, in the form of: sales tax, property tax, and corporate tax, to name only a few.

anita

My ex-husband works under the table to avoid paying child support. His back payments could buy me a new home. He really makes in the $100,000.00 range, but only claims $13,000.00. It's an outrage!

joan maraj

I ask my employer to start paying my Social Security taxes and to also pay most of my salary on the books rather than under the table. And guest what, he replace me with another person after 5 years of service. I wanted to hire a lawyer but can't affort it. He himself is a lawyer. I want to know what I can do to him to get him pay the IRS. I also ask him for my 1099 form and have not received it as yet. Help me please. He has 100,000 milions dollars in cash and lives on the intrest only.

Adam

Non-consensual tax is theft. Find free market solutions to the problems "solved," i.e. paid for with stolen money with threat of violence if you refuse, by the government.

Are we not free men? Do we not have the right to work for a second party and earn a living without interference from a third party?

If we do not have this right, then we are, in fact, slaves.

Billy DeCastro

Under the table pay has been going for decades, a little corruption is OK. As long as no one gets hurt is OK. Oh stop, it happens every day, is not any of my business what or how anybody else gets paid.

These are the comments from all the non-intellectuals philosophers out there. Of course many of you just "went to school and never grasp the concept of it, that is to "get an education" so you will not accept what is illegal--the more of it you allow people to get away with the worse our economy will become and eventually the country will be so corrupt there is not way to resolve or social problems driving a country into third world levels where only the few privileged are allow to enjoy good medicine, food, clothing and many other necessities and luxuries that we all are entitled to take advantage of.

By the way for those who think we are free, well I have news. We have never been free, and especially when you lived in your parents' home, so you moved out, and you're still not free. You want to die your way when the time comes, and someone could interfere with that as well, if we are free; why is it a crime to walk on the street naked? If we are it should be anybody's business if I do, so forget it about it, accept he fact that taxes were enacted to run the country, but if it is not managed correctly, there is only one solution and that involves something called honesty, that we all have lost, all of us, because including me, I have trained my face to people doing something wrong instead of telling, because I do not want to be called a "rat" that makes me a part of something we are all guilty of.

andrew

My father has been paying his employees under the table for years. He is retired now, and I took over his estate and am doing the same thing. I have about 10 employees working for me and getting paid from the estate money. I pay them each over $60,000 yearly under the table and also on the books a little. I do not issue them a 1099 form at the end of the year. It is same to do it. If some report me to the IRS, will they investigate me and how long will it be for them to get in contact with me? What will happen to me if they pick me up. Will I have to pay back all those taxes that my father didn't pay or they will only start from the time I was responsible for paying them. Or will I never be investigated.

alex mon

I am working for my boss, who is also my lover. And get paid under the table as the rest of his workers. If someone reports me will I get in trouble with the IRS or my boss. If it is my co worker, they don't know my age, Social Security number, and my home address but they know my work address. Can the IRS take their complaint?

ukusa

The IRS will most certainly take their complaint. We take many of them every day. We follow through, too, and have so far prosecuted over a million employers, which is just a drop in the bucket. We are the IRS, the biggest theives in the world.

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