Unreported employment, also known as money under the table, working under the table, off the books, cash-in-hand, or illicit work is
illegal
Illegal, or unlawful, typically describes something that is explicitly prohibited by law, or is otherwise forbidden by a state or other governing body.
Illegal may also refer to:
Law
* Violation of law
* Crime, the practice of breaking the ...
employment that is not reported to the
government
A government is the system or group of people governing an organized community, generally a state.
In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is ...
. The employer or the employee often does so for
tax evasion
Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the tax ...
or avoiding and violating other laws such as obtaining unemployment benefits while being employed. The working contract is made without
social security
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
costs, and does typically not provide
health insurance, paid
parental leave
Parental leave, or family leave, is an employee benefit available in almost all countries. The term "parental leave" may include maternity, Paternity (law), paternity, and adoption leave; or may be used distinctively from "maternity leave" and ...
, paid
vacation
A vacation (American English) or holiday (British English) is either a leave of absence from a regular job or an instance of leisure travel away from home. People often take a vacation during specific holiday observances or for specific festi ...
or
pension funds. It is a part of what has been called the
underground economy
A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the ...
, shadow economy,
black market or the non-observed economy.
Payments are generally in
cash
In economics, cash is money in the physical form of currency, such as banknotes and coins.
In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...
, and the employer often does not check the employee's background or
credentials, as is sometimes required by law or otherwise expected by the industry's client base, such as a
license or
professional certification.
While the hiring of the employee may or may not be legal in itself, it is often done when the employer or the employee intentionally fails to obey one or more laws.
In
developed nation
A developed country (or industrialized country, high-income country, more economically developed country (MEDC), advanced country) is a sovereign state that has a high quality of life, developed economy and advanced technological infrastruct ...
s, unreported employment evades
withholding tax
Tax withholding, also known as tax retention, Pay-as-You-Go, Pay-as-You-Earn, Tax deduction at source or a ''Prélèvement à la source'', is income tax paid to the government by the payer of the income rather than by the recipient of the income ...
and is part of the
informal sector
An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government.
Although the informal sector makes up a significant portion of the economies in developing countrie ...
. It is hidden from the state for tax, social security, or labor law purposes but is legal in all other aspects.
Common jobs
Common types of
employment sectors of unreported jobs include the following:
*
Domestic work
A domestic worker or domestic servant is a person who works within the scope of a residence. The term "domestic service" applies to the equivalent occupational category. In traditional English contexts, such a person was said to be "in service ...
, such as
housekeeping
Housekeeping is the management and routine support activities of running an organised physical institution occupied or used by people, like a house, ship, hospital or factory, such as tidying, cleaning, cooking, routine maintenance, shopping, ...
,
babysitting
Babysitting is temporarily caring for a child. Babysitting can be a paid job for all ages; however, it is best known as a temporary activity for early teenagers who are not yet eligible for employment in the general economy. It provides auton ...
, or
foodservice
The foodservice (US English) or catering (British English) industry includes the businesses, institutions, and companies which prepare meals outside the home. It includes restaurants, school and hospital cafeterias, catering operations, and many ...
*
Construction work,
landscaping
Landscaping refers to any activity that modifies the visible features of an area of land, including the following:
# Living elements, such as flora or fauna; or what is commonly called gardening, the art and craft of growing plants with a goal ...
,
farm work
*
Taxicab
A taxi, also known as a taxicab or simply a cab, is a type of vehicle for hire with a driver, used by a single passenger or small group of passengers, often for a non-shared ride. A taxicab conveys passengers between locations of their choi ...
service (sometimes known as
hacking)
*Various types of
self-employment
Self-employment is the state of working for oneself rather than an employer. Tax authorities will generally view a person as self-employed if the person chooses to be recognised as such or if the person is generating income for which a tax return n ...
, such as
plumbing
Plumbing is any system that conveys fluids for a wide range of applications. Plumbing uses pipes, valves, plumbing fixtures, tanks, and other apparatuses to convey fluids. Heating and cooling (HVAC), waste removal, and potable water deliv ...
,
electrician
An electrician is a tradesperson specializing in electrical wiring of buildings, transmission lines, stationary machines, and related equipment. Electricians may be employed in the installation of new electrical components or the maintenance ...
,
window cleaning
Window cleaning, or window washing, is the exterior cleaning of architectural glass used for structural, lighting, or decorative purposes. It can be done manually, using a variety of tools for cleaning and access. Technology is also employed and ...
,
painting and decorating
A house painter and decorator is a tradesman responsible for the painting and decorating of buildings, and is also known as a decorator or house painter.''The Modern Painter and Decorator'' volume 1 1921 Caxton The purpose of painting is to imp ...
,
street market
A marketplace or market place is a location where people regularly gather for the purchase and sale of provisions, livestock, and other goods. In different parts of the world, a marketplace may be described as a ''souk'' (from the Arabic lang ...
trading, and
gardening
*Short-term work and day laborers
*Short-term youth employment
*
Barbacking and restaurant work
*
Human trafficking
*
Prostitution
*Fixing cars, motorcycles, and mopeds
Reasons
Reasons one may work or pay a worker cash-in-hand include:
*Avoidance of wage
garnishment
Garnishment is a legal process for collecting a monetary judgment on behalf of a plaintiff from a defendant. Garnishment allows the plaintiff (the "garnishor") to take the money or property of the debtor from the person or institution that holds t ...
or payment of
child support
Child support (or child maintenance) is an ongoing, periodic payment made by a parent for the financial benefit of a child (or parent, caregiver, guardian) following the end of a marriage or other similar relationship. Child maintenance is paid d ...
or
alimony
Alimony, also called aliment (Scotland), maintenance (England, Ireland, Northern Ireland, Wales, Canada, New Zealand), spousal support (U.S., Canada) and spouse maintenance (Australia), is a legal obligation on a person to provide financial sup ...
*Cheaper workforce and avoidance of
minimum wage laws
*Convenience for both parties
*Elimination of paperwork, bookkeeping, and regulation compliance
*Reduced/eliminated expenses or need for bookkeepers, human resource specialists, lawyers, accountants, payroll services, insurance agents and other employment specialists
*Not checking or showing a
criminal record
A criminal record, police record, or colloquially RAP sheet (Record of Arrests and Prosecutions) is a record of a person's criminal history. The information included in a criminal record and the existence of a criminal record varies between coun ...
*Protesting actions or policies of the governing authorities e.g.
sovereign citizen movement
The sovereign citizen movement (also SovCit movement or SovCits) is a loose grouping of litigants, activists, tax protesters, financial scheme promoters and conspiracy theorists, who claim to be answerable only to their particular interpret ...
(see
agorism)
*Evasion of
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
requirements
*Flexibility in hiring short-term employees without excessive overhead or paperwork
*Avoid allowable income limits by a person receiving certain benefits, such as
unemployment
Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work during the refere ...
,
disability
Disability is the experience of any condition that makes it more difficult for a person to do certain activities or have equitable access within a given society. Disabilities may be cognitive, developmental, intellectual, mental, physical, ...
, or
public assistance
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
*
Fugitive
A fugitive (or runaway) is a person who is fleeing from custody, whether it be from jail, a government arrest, government or non-government questioning, vigilante violence, or outraged private individuals. A fugitive from justice, also known ...
,
draft evasion
Draft evasion is any successful attempt to elude a government-imposed obligation to serve in the military forces of one's nation. Sometimes draft evasion involves refusing to comply with the military draft laws of one's nation. Illegal draft e ...
,
illegal immigration,
escaped prisoner or
organized crime
Organized crime (or organised crime) is a category of transnational, national, or local groupings of highly centralized enterprises run by criminals to engage in illegal activity, most commonly for profit. While organized crime is generally th ...
*
Tax noncompliance
Tax noncompliance (informally tax avoision) is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the criminal non-payment of ...
,
tax resistance
Tax resistance is the refusal to pay tax because of opposition to the government that is imposing the tax, or to government policy, or as opposition to taxation in itself. Tax resistance is a form of direct action and, if in violation of the tax ...
, or
social security
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
evasion
* Ability to hire employees according to personal traits not related to suitability for employment (e.g. gender, sexuality, ethnic/religious affiliations etc.)
* Ability to hire those who were formerly qualified, and still potentially able to do the job (e.g. blacklisted, disbarred, forced retirement, struck off, etc.)
* Ability to hire underage, teenage employees without going through
child labor laws
Child labour laws are statutes placing restrictions and regulations on the work of minors.
Child labour increased during the Industrial Revolution due to the children's abilities to access smaller spaces and the ability to pay children less wage ...
or hire those below the minimum
working age
Working age is the range of ages at which people are typically engaged in either paid or unpaid work. It typically sits between the ages of adolescence and retirement
Retirement is the withdrawal from one's position or occupation or from one' ...
(e.g. for short-term projects)
* Quicker, faster hiring process from application to job attainment.
Disadvantages
Unreported employment can have harmful effects on government, employers, and employees.
Unreported employment directly affects the government's ability to fund resources (
government spending). It causes a tax gap by the reducing tax revenue of a government.
A 2005
University of California, Los Angeles
The University of California, Los Angeles (UCLA) is a public land-grant research university in Los Angeles, California. UCLA's academic roots were established in 1881 as a teachers college then known as the southern branch of the California S ...
, study showed that the economy in
California
California is a state in the Western United States, located along the Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the most populous U.S. state and the 3rd largest by area. It is also the m ...
was weakened by more than two million workers being paid without paying taxes. Indeed, it is estimated that over US$214.6 billion went unreported to the
IRS
The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax ...
last year alone from this.
Those who are employed under the table, including undocumented immigrants, may be denied rights that legally employed workers have, such as minimum wage, various benefits (particularly unemployment benefits), and fair treatment.
Under-the-table employees who
lose their jobs may not be entitled to collect unemployment benefits. They have limited causes of action against their employers for mistreatment, on-the-job
work accidents, or lack of payment. Employers have limited cause of actions against employees who commit crimes such as
embezzlement,
theft
Theft is the act of taking another person's property or services without that person's permission or consent with the intent to deprive the rightful owner of it. The word ''theft'' is also used as a synonym or informal shorthand term for som ...
, or abuse of employer.
If practices are widespread, legitimate businesses may be undercut by and may have difficulty competing with those who employ staff illegally.
Government revenue agencies look for lifestyles out of line with the income reported. They have tools that aid in assessing unreported taxes, which can result in large fines or jail time for the employer.
Advantages
Many entrepreneurs fail to report their first part-time hired employees. The complexity of employment regulations and large amount of paperwork can be daunting, especially when someone is needed for only a few hours a week. That early underground employment may be a vital step in the growth of a healthy open economy.
Day labor
Day labor (or day labour in Commonwealth spelling) is work done where the worker is hired and paid one day at a time, with no promise that more work will be available in the future. It is a form of contingent work.
Types
Day laborers (also ...
ers fill immediate gaps during labor shortages in some segments of the construction and landscape industries. Background checks, identification, required paperwork, and government filings for only a day's work can be prohibitive. That encourages unreported employment of short-term laborers.
A large amount of work for only a day or two is unreported. Although nanny laws make allowances for the homeowner, businesses are typically required to fill out and file several hours' worth of paperwork even for an hour's worth of work.
The amounts are too small for tax collecting agencies to pursue and the paperwork too arduous to file and so legitimate micro-employment among businesses is rare. However, it is an important resource for many small businesses.
In professional fields like architecture, or marketing, unreported work is typically the first step to starting a legitimate business.
Again, paperwork, compliance, and knowledge of labor laws are prohibitive for the small amount of work that is performed. Although illegal, side businesses generate relatively little revenue and so are rarely the target of tax enforcers. Eventually, professional employees have enough work to be able to leave their employer and become independent. Then, paperwork is usually filed and
self-employment
Self-employment is the state of working for oneself rather than an employer. Tax authorities will generally view a person as self-employed if the person chooses to be recognised as such or if the person is generating income for which a tax return n ...
taxes are reported. The business then becomes a legitimate and beneficial part of the economy.
Those who are unlikely to find employment through the reported economy, including those with past criminal records or current warrants as well as illegal immigrants can be reasonably productive and self-sufficient. That keeps them from engaging in less-desirable activities like theft and drug use.
Self-employment in
cottage industries
The putting-out system is a means of subcontracting work. Historically, it was also known as the workshop system and the domestic system. In putting-out, work is contracted by a central agent to subcontractors who complete the project via remote ...
is often unreported at first. A home cook, for example, may sell a few pies to friends and co-workers without filing necessary sales taxes or self-employment taxes. Although that is usually illegal, it may lead to a legitimate and beneficial business and is often how small businesses are started.
In some countries, the tax system attempts to set minimum thresholds on the amounts liable. However, there is still the burden of compliance with the bookkeeping requirements to prove that one is exempt.
Short-term youth employment is often unreported but can be very beneficial. A teenager hired to aid in constructing a shed or barn, for example, learns valuable skills and responsibility. Most youth would not be employed for short-term projects if employment had to be reported. Government revenue collectors typically ignore enforcement of such beneficial, unreported employment. Youth-run lemonade stands that have been shut down by police for example have received an enormous amount of bad press and public outcry.
Enforcement
Often, both the employer and employee agree on paying in cash. Frequently, the employer is running an unreported cash-based business. These methods make detection by authorities to be time-consuming and difficult. Most small-scale operations take place without any real enforcement effort. Landscaping is a good example of a cash-based business that is frequently unreported.
In the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
, authorities have focused enforcement resources on large-scale operations like undocumented immigrants who are employed by large companies. Discovery and enforcement of small-scaled unreported employment is typically through a secondary indiscretion like fraud, tax irregularities, and unrelated or partially-related civil/criminal violations of the employer or employee.
Although the federal and/or state government may arrest, prosecute, and imprison an individual for engaging in commerce without the state's approval, the high cost of such enforcement is usually prohibitive and impossible except for the most egregious cases.
Examples
United States
According to a ''
The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid d ...
'' report in February 2013, the
Obama administration had demonstrated a new strategy to curb the employment of undocumented immigrants by focusing on companies that hire them in the first place. By concentrating on the businesses employing the large numbers of unauthorized workers, the number of undocumented immigrants working in the US would drop dramatically. The
US government
The federal government of the United States (U.S. federal government or U.S. government) is the national government of the United States, a federal republic located primarily in North America, composed of 50 states, a city within a feder ...
would be doing so in a less confrontational manner than in recent years.
American Apparel incident
In 2009, an
U.S. Immigration and Customs Enforcement
The U.S. Immigration and Customs Enforcement (ICE) is a federal law enforcement agency under the U.S. Department of Homeland Security. ICE's stated mission is to protect the United States from the cross-border crime and illegal immigration tha ...
audit of American Apparel's employment records uncovered discrepancies in the documentation of about 25% of the company's workers, implying mainly that they were undocumented immigrants. American Apparel terminated the employment of about 1,500 employees that September as a result. ICE did not accuse American Apparrel of knowingly employing workers without employment authorization, however, and American Apparel received no fines.
[Preston, Julia (September 29, 2009).]
Immigration Crackdown With Firings, Not Raids
. ''The New York Times''.
See also
*
Side job
A side job, also informally called a side hustle or side gig, is an additional job that a person takes in addition to their primary job in order to supplement their income. Side jobs may be done out of necessity, when one's income from their mai ...
*
Informal economy
*
Black market
*
Illegal immigration
*
U.S. Immigration and Customs Enforcement
The U.S. Immigration and Customs Enforcement (ICE) is a federal law enforcement agency under the U.S. Department of Homeland Security. ICE's stated mission is to protect the United States from the cross-border crime and illegal immigration tha ...
(ICE)
References
External links
Reflections on the Meaning and Measurement of Unobserved Economies:What do we really know about the "Shadow Economy"? by Edgar L.Feige Journal of Tax Administration 2016, Vol. 2, No. 1
{{Authority control
Labour law
Tax resistance
Black markets
Employment
Informal economy
Crime