Working under the table
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Unreported employment, also known as money under the table, working under the table, off the books, cash-in-hand, or illicit work is illegal
employment Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any othe ...
that is not reported to the government. The employer or the employee often does so for tax evasion or avoiding and violating other laws such as obtaining unemployment benefits while being employed. The working contract is made without social security costs, and does typically not provide
health insurance Health insurance or medical insurance (also known as medical aid in South Africa) is a type of insurance that covers the whole or a part of the risk of a person incurring medical expenses. As with other types of insurance, risk is shared among ma ...
, paid parental leave, paid vacation or
pension fund A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed and priva ...
s. It is a part of what has been called the underground economy, shadow economy,
black market 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 se ...
or the non-observed economy. Payments are generally in cash, 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 A license (or licence) is an official permission or permit to do, use, or own something (as well as the document of that permission or permit). A license is granted by a party (licensor) to another party (licensee) as an element of an agreeme ...
or
professional certification Professional certification, trade certification, or professional designation, often called simply ''certification'' or ''qualification'', is a designation earned by a person to assure qualification to perform a job or task. Not all certifications ...
. 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 and is part of the informal sector. 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 Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any othe ...
sectors of unreported jobs include the following: * Domestic work, such as housekeeping, babysitting, or foodservice *
Construction work Construction is a general term meaning the art and science to form objects, systems, or organizations,"Construction" def. 1.a. 1.b. and 1.c. ''Oxford English Dictionary'' Second Edition on CD-ROM (v. 4.0) Oxford University Press 2009 and come ...
, landscaping,
farm work A farm (also called an agricultural holding) is an area of land that is devoted primarily to agricultural processes with the primary objective of producing food and other crops; it is the basic facility in food production. The name is used fo ...
* Taxicab service (sometimes known as hacking) *Various types of self-employment, such as plumbing, electrician, window cleaning, painting and decorating, street market trading, and
gardening Gardening is the practice of growing and cultivating plants as part of horticulture. In gardens, ornamental plants are often grown for their flowers, foliage, or overall appearance; useful plants, such as root vegetables, leaf vegetables, fruits ...
*Short-term work and day laborers *Short-term youth employment * Barbacking and restaurant work *
Human trafficking Human trafficking is the trade of humans for the purpose of forced labour, sexual slavery, or commercial sexual exploitation for the trafficker or others. This may encompass providing a spouse in the context of forced marriage, or the extrac ...
*
Prostitution Prostitution is the business or practice of engaging in Sex work, sexual activity in exchange for payment. The definition of "sexual activity" varies, and is often defined as an activity requiring physical contact (e.g., sexual intercourse, n ...
*Fixing cars, motorcycles, and mopeds


Reasons

Reasons one may work or pay a worker cash-in-hand include: *Avoidance of wage garnishment or payment of child support or alimony *Cheaper workforce and avoidance of
minimum wage A minimum wage is the lowest remuneration that employers can legally pay their employees—the price floor below which employees may not sell their labor. Most countries had introduced minimum wage legislation by the end of the 20th century. Bec ...
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 *Protesting actions or policies of the governing authorities e.g. sovereign citizen movement (see
agorism Agorism is a social philosophy that advocates creating a society in which all relations between people are voluntary exchanges by means of counter-economics, engaging with aspects of nonviolent revolution. It was first proposed by American liber ...
) *Evasion of insurance 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, disability, or public assistance * Fugitive, draft evasion,
illegal immigration Illegal immigration is the migration of people into a country in violation of the immigration laws of that country or the continued residence without the legal right to live in that country. Illegal immigration tends to be financially upwar ...
, escaped prisoner or organized crime * Tax noncompliance, tax resistance, or social security 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 (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 Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual o ...
). It causes a tax gap by the reducing tax revenue of a government. A 2005 University of California, Los Angeles, study showed that the economy in California 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 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 A work accident, workplace accident, occupational accident, or accident at work is a "discrete occurrence in the course of work" leading to physical or mental occupational injury. According to the International Labour Organization (ILO), more tha ...
, or lack of payment. Employers have limited cause of actions against employees who commit crimes such as
embezzlement Embezzlement is a crime that consists of withholding assets for the purpose of conversion of such assets, by one or more persons to whom the assets were entrusted, either to be held or to be used for specific purposes. Embezzlement is a type ...
, theft, 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 laborers 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 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 w ...
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, 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'' report in February 2013, the
Obama administration Barack Obama's tenure as the 44th president of the United States began with his first inauguration on January 20, 2009, and ended on January 20, 2017. A Democrat from Illinois, Obama took office following a decisive victory over Republican ...
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 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 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 *
Informal economy 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 ...
*
Black market 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 se ...
*
Illegal immigration Illegal immigration is the migration of people into a country in violation of the immigration laws of that country or the continued residence without the legal right to live in that country. Illegal immigration tends to be financially upwar ...
* U.S. Immigration and Customs Enforcement (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