He was paying cash only to workers
Always fascinating to me. From the owners perspective, there is no reason to pay employees cash from declared sales. The money spent that way would just be taxable as income to the owner… so let’s assume that a business which pays cash wages is also not declaring sales.
So let’s look at the ways this owner is cheating and who:
- Undeclared sales: not remitting sales tax. Not only is he not paying the tax which is how our roads get maintained, streets plowed, fire department protection etc etc… he is pocketing (i.e. stealing) this money. Rips off the city, county and state and all the rest of us. ~6-8% of all undeclared sales.
- Undeclared sales: Not declaring and paying income tax on the money he keeps. Rips off the state and the IRS. Since he still writes off all his regular expenses let’s say that this amounts to 30% of the undeclared sales.
- Undeclared wages:
a. Income tax is not paid by employees.
b. FICA is not paid by employees. (rips off employee because he or she looses the credit for these wages in the system. 7.5% of the cash wages
c. Employer share FICA/Medi is not paid. Rips off all of us. 9% of the cash wages
d. No workman’s comp contribution paid. Raises rates for all of us. (Is also one of the more likely ways for this owner to get busted) 2-5% of the cash wages.
e. No unemployment paid. In addition to the fact that some of the folks getting paid are actually collecting while they cheat this way, it raises the rates on the rest of us. Varies a lot… but 5% of wages?
This behavior is a huge rip off. Employees are not protected by work comp or unemployment and the rest of us are ripped by a neighbor not carrying his share of the load.
In addition to all that, when I pay a cook $11.00 it costs me about $13.00 per hour when I add in employers share of taxes, work comp and unemployment. The employee pays FICA etc and walks away with $9.00 or $10.00 per hour. The business cheating pays $10 cash… so why is everyone so patient with a competitor who is saving 30% on labor and cheating on sales taxes!
In the example from the post above, let’s assume that the business not declaring 100K sales and using that to pay cash wages:
$7,000 sales tax pocketed
$15,000 FICA not paid
$8,000 work comp and unemployment not paid
$30,000 in load shifted to you and me and that is before income tax!
Report them!
