The primary benefit to both employer and employee to getting paid under the table is the same – the illegal avoidence of taxes. When an employee is paid UTT, there is typically no record of the transactions. Therefore, the employee’s W-2 does not record the cash income allowing him, if unscrupulous and stupid, to not declare that income and therefore not pay the associated tax. Similarly, the employer can avoid witholding income tax (which is a hassle), and both parties completly avoid paying the employee’s FICA (Social Security and Medicare), as well as any federal or state unemployment insurance contributions that are due. Since both employer and employee typically contribute to these pots, unrecorded cash transactions mean that they’re both illegally avoiding these payments.
Of course, not only are these all felonies, they also work, like everything unregulated thing ever done by management, to screw the employee. In the States, your Social Security benefit on retirement is calculated on a formula based primarily on how much you earned during your working years. Becasue there’s no record of the true labor the employee did or the true wage he was paid, that benefit will be lower than the employee really deserves. (Although given that over the years the defrauding employee as already deprived the public fisc of this and more in his failure to pay income taxes, I can’t really get too worked up about it.) The longer you work under the table, the larger this disparity is going to be when you retire.
More directly, since unemployment insurance is paid through a combination of employer subsidies and employee paycheck deductions, if the employee gets laid off, even in most states up to years later, he won’t get the unemployment compensation he’s deserved – your unemployment amount is based on your reported salary when you were working. In fact, if the employee gets laid off directly from the job paying him UTT, he might not be eligible for unemployment comp at all because as far as the state government is concerned, he hasn’t been working. State disability insurance may work in a similar fashion.
Finally, as Martini notes, another “benefit” of being paid under the table arises if you’re actually on Social Security, unemployment, Welfare, disability, or Medicare/caid at the time you do the work. Depending on your program, the government would typically reduce your standard benefit amount in a week in which you earned money elsewhere. In some disability programs, you may be ineligible to work at all and still maintain your benefits. Keeping your income secret from the government agencies enforcing these rules can mean your payment doesn’t change when it should. Of course, this works a fraud on the government, and you can bet your as that’s illegal – and not something they take lightly like sparking up. I’ve heard on the radio (no cite, sorry – take this as unsubstantiated rumor) that the Bush Administration has been particularly aggressive in finding and prosecuting Medicare and Social Security cheats as a way of limiting the cost of these programs.
So, in summary: yes, there are benefits, but the big ones are fraudulent, felonious, and detrimental to the employee long-term.
–Cliffy
