Is Paying Wages “Under the Table” Worth It?

31 January 2018

It can be easy to fall into the trap of paying your staff cash “under the table” instead of putting them on the payroll, less paperwork, no holiday pay, KiwiSaver and so on. However this will surely backfire for you when it comes to preparing your business and/or personal income tax return.

These cash withdrawals from your business will be treated as personal drawings and therefore won’t be claimed for income tax purposes, you can’t offset them against the income you’ve earned from your customers or clients. If you trade through a company this will also make your drawings higher meaning less you can take out for yourself from the equity you’ve injected. Also if your employee has an accident they will have problems getting ACC compensation as there is no record of any earnings.

The financial impact of this can be huge, as an example say you pay your worker $400 week as a “cashie” – over a year that is $20,800. You will have to pay tax on this amount and at the highest tax rate it will cost you $6,864 in income tax to pay! So you’ve paid out $20,800 + $6,864 – it will also increase your income for any government assistance like working for families, WINZ or child support calculations.

You are much better to do things properly and register as an employer (if you’re not already) and pay the PAYE etc. monthly to Inland Revenue. It’s not difficult and we can help get you set up so things run smoothly each month. Overall it will save in many ways and ensure both yourself and employee incomes are being recorded correctly, tax is kept as low as it can be and you’re fully compliant with Inland Revenue.