Ask The Lawyer By: Daniel A. Gwinn, Esq. Working on a Cash Basis?
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EMPLOYEE ACCEPTING CASH PAYMENTS MAY BE HEADING FOR LEGAL TROUBLE
QUESTION: I lost my job with an electrical firm back in March 2020 and applied for unemployment. I’ve been receiving unemployment ever since. A few weeks ago, I started doing some work for an electrical contractor. Initially, it was just a few jobs, here and there, and he paid me in cash. I did not report the income to the Unemployment Agency, because my understanding is that cash payments don’t count. The contractor is now offering me a full-time job, but says he would keep paying me in cash to keep my pay up and his costs down. If I accept this job, do I have to report it to the UIA? And, is it OK to work on a cash basis?
ANSWER: You and your potential boss could be in big trouble if you keep doing what you’re doing. Your conduct is in violation of a slew of laws including the Michigan Security in Employment Act (which governs unemployment benefits), the Fair Labor Standards Act, and the Internal Revenue Code
Let’s start with unemployment. One of the questions you are asked when certifying for benefits is whether you did “any type of work” in a benefit week, and if you had any earnings during that week. According to the UIA, you must answer yes to these questions if you worked on any day in the benefit week.
There is no “cash payment” exception to your duty as a claimant for benefits to report your income from any work you perform, whether it is full time work, part-time work, freelance work or gig work. If you are receiving money – whether cash, check, money order, direct deposit or even Venmo — in exchange for your labor, you must report it to the agency in the week in which the money is earned. If you earn more in a week than 1.5 times your weekly benefit amount (excluding the extra $300 extra from the federal government), you may not receive benefits for that week.
If the UIA finds that you “intentionally make false statements or conceal material information” in order to receive benefits, you will have to repay the benefits you received, plus a penalty of up to 1.5 times those benefits – plus interest on the entire amount. One of the UIA’s top examples of “intentional misrepresentation”? Failing to report work and continuing to collect full benefits.
Note that fraud involves “intentional” misrepresentation.” The Agency recommends that claimants who made a “mistake” when certifying for benefits, and who have already received a benefit payment, contact the UIA immediately. The claimant will be required to pay back any benefits received, but may avoid a finding of fraud. The caveat is that the Agency may be unwilling to accept a claimant’s word that an incorrect response to a certification question was in fact a mistake. And, the Agency has been known to make its own mistakes, such as finding a claimant ineligible for an entire benefit year based on a few weeks of inaccurate certifications. Worse, the Agency currently has three years to let you know that it has found you ineligible for benefits you already received; no news is not necessarily good news. Just because you haven’t received a Notice of Determination finding you ineligible because of fraud, doesn’t mean you won’t. You’re in a tough spot, no question about it.
Federal law requires all employers with gross earnings of $500,000 to follow the Fair Labor Standards Act. Workers must be paid a minimum wage, hourly employees who put in more than 40 hours in a given week must be paid overtime, and the employer must keep records of an employee’s time and pay.
While payments in cash are not per se illegal under the FLSA, cash payments are illegal if an employer fails to pay unemployment insurance for its workers, fails to pay its share of the worker’s social security taxes (FICA), and fails to deduct taxes and Medicare from an employee’s gross earnings. Larger employers are also required to offer health insurance and paid sick time to their employees. Failing to do so could get the employer into hot water with the IRS as well as the Department of Labor.
While an employer does not have to pay into unemployment, or pay a share of social security, or deduct state and federal taxes etc. on behalf of a contract worker (who does not receive a W-2) etc., people who work full-time at one job site for one employer are, generally speaking, not contract employees. And, even contract workers cannot work off the books – an employer must file a 1099 form when it pays a contract worker more than $600 in one a year.
If your potential employer wants to avoid fines and maybe even jail time, he will put you on the books, and make all required payments on your behalf to state and federal governments.
Tax cheats – especially corporate and business cheats — cost the federal government $1 trillion every year. That’s money that could be used to fund things like health care, education and infrastructure, or pay down the national debt. However, Congress has been unwilling to increase IRS funding to enable it to crack down on tax cheats.
The lawyers at GWINN LEGAL PLLC are experienced attorneys and are happy to answer your questions. Give us a call for a free initial telephone consultation about your legal needs. For consideration of your questions in our web column, please submit your inquiry on the “Contact Us” page of our website at www.gwinnlegal.com.
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ASK THE LAWYER
By: Daniel A. Gwinn, Esq.
Attorney and Counselor at Law
GWINN LEGAL PLLC
900 Wilshire Drive, Suite 104
Troy, MI 48084
(248) 970-0311 facsimile