Contrary to popular perception, it is not illegal to pay an employee in cash per se.
However, it is a risky move for a number of reasons. The big issue with so-called under the table, that is, cash, payments is that it is quite easy to fall short in one’s legal obligations to withhold and tender payroll taxes to the federal and state governments.
At the federal level, employers are responsible to withhold income tax, Social Security, and Medicare taxes and tender them to the government. Should an employer choose to pay in cash, then the employer will have to account for these taxes accurately or faces serious consequences, including trouble with the IRS.
Likewise, hard-to-track cash payments can also mean that an employer misses payments to Illinois taxing authorities and thus finds itself liable for a big tax bill.
Finally, if an employer knows or has reason to know that an employee wants cash payments in order to avoid paying taxes, then an employer can be accused of being complicit in a crime.
Business owners and even private residents of the greater Chicago area may also use independent contractors, that is, non-employees who usually get paid by the job and maintain their own business operations and payroll. It is safer to pay these sorts of business associates in cash, although one still will have to follow certain legal requirements.
Moreover, as this blog has discussed in the past, it must be clear that the independent contractor is not in fact an employee.
Payroll tax disputes can cause serious legal trouble for employers, particularly if they have for whatever reason elected to pay wages in cash.