During high school I worked at the local steakhouse. It had always been for sale (as I’m told all restaurants are) but about 1991 the owners got to haggling with someone who’d apparently expressed real interest.
During that time, we got our paper paychecks, but also in the envelope was the equivalent amount in cash. The manager told us we were to take the cash and sign the check back over to the restaurant. I’m pretty sure that the cash was for the net amount, not the gross, but I can’t be sure.
After a month or so of this, the guy did buy the place and payroll went back to normal.
What was the advantage of the old owners doing this, while the restaurant’s sale was being negotiated?
The employer may have been trying get around paying FICA fees and taxes. Those deductions go toward your future Social Security and Medicare benefits. If you took the cash there will not be a record of money being paid for these services. There will not be a record of you paying into these future benefits.
There are also FUTA taxes that the employer pays into for your potential unemployment benefits.
Boss was likely not paying for these required benefits.
It sounds like some sort of low-grade money laundering or something; one possibility is that although the check (maybe the cash too) came out of payroll accounting, it may have been paid back in as takings and this could contribute to an inflated turnover figure.
That is, if you want to sell a restaurant business, it is potentially to your advantage if the restaurant looks on paper like it’s taking more money than it really is (even if this deception also means the expenses are greater than reality by a similar figure, because prospective buyers will always think they can trim costs)
Let me see if I have this straight - you got an envelope with a paper paycheck , there was a difference between your net pay and gross pay , the envelope also contained your net pay in cash and you were told to sign the paycheck over to the restaurant? It sounds like some sort of convoluted scheme that involves the restaurant cashing the paycheck for you ( which is not terribly uncommon in restaurants and stores) but since it seems like taxes etc were being withheld and you were getting the exact amount of the net pay in cash , I don’t think there was any financial funny business going on regarding taxes . There is a record of you being paid ( the paycheck and associated stub) and in fact, the parts that seem strange to me is 1 ) that they apparently did this automatically for everyone, not just for people who wanted the employer to cash their paycheck 2) They gave you the cash before you gave them the signed check. If it’s being done for everyone, I don’t understand why they didn’t simply pay in cash with an envelope that listed various withholdings (which is a perfectly legit way to pay). I also don’t understand why this only started happening while the sale was being negotiated , unless that was just coincidence.
I can’t see how this can turn into a sudden avoidance of required deductions.
My though is that the money goes into limbo for a time - depending upon how things are managed. If the money can be cycled through the limbo of living in a cheque for enough time - so it straddles an accounting cycle - it can be cycled through the books in a manner that falsely increases the apparent cash flow. Net zero change, more money in and more money out. Not a huge fraud, but might tilt perceptions of the business.
No, OP did wrong by participating in this fraud scheme.
Though they could probably plead ignorance, and avoid serious punishment.
But Social Security taxes are owed, and if the government finds out about this, they will collect them. They will probably go after the business (the new owner), as they were supposed to pay them. After that, they can come after the employees for their half of the tax (and maybe the employer half, too).
Even if that doesn’t happen, in 50 years or so, when the OP becomes eligible for Social Security, they will discover these missing years of Social Security credit on their account. (But, depending on their other earnings over their working life, it may not matter much to them. Just a fraud covered by the rest of us taxpayers.)
A more typical fraud used by owners trying to sell a business is to pay employees partly by check and partly in cash. Like an employee is owed $315, but to give them a payroll check for $215 + $100 in cash. Doing that, the business books will show a reduced payroll cost to the prospective buyer. (Also cheats the Social Security fund, the state unemployment fund, their benefits insurance, etc., but this is minor – fooling the prospective buyer is the main goal.) Replacing the entire check net with cash inclines me to also agree with Dallas_Jones’s intrepration – this is mainly a fraud on the government.
You’re assuming facts not in evidence, but you may well be right. As best the OP told us, the paper check showed all the appropriate tax deductions. Which is never proof the government was paid, but introduces its own bookkeeping challenges for the owner if not. At that point it’s far easier to just pay the staff in cash and skip the fake check.
As to reduced SS benefits if in fact someone is being paid under the table, you’re absolutely right. Whether the worker realizes that’s what’s happening or not. FYI nowadays anyone, not just near-retirees, can create an account at ssa.gov and check their earnings record. No need to wait to age 62 or later then have an unpleasant surprise.
If the numbers aren’t right, the sooner you know the sooner you can pursue fixing it. Your W2 should be a reliable source too, but it’s no more reliable than the rest of the scurvy thieves you work for. SSA’s records are what matter.
In the OP’s case, this scam / shenanigans was done for one month of wages. If that does cause an SSA benefit impact it’ll be negligible.
A key point in the story is the owner was selling the business. I’m wondering is it has something to do with making sure a certain account kept $X in it because of the sale.
Payroll checks are always net. Your employer never pays you the gross amount.
It is the employers responsibility to remit the taxes to the taxing authorities.
The only reason, I can imagine for wanting to pay the employees cash this one time, would be that the business wanted to have a proper cut-off of the bank account for the sale, and didn’t want employees to hold these outstanding checks for a period of time before they were presented to the bank for payment.
It’s a common scheme to make the business look more profitable. He takes the cash from his own pocket and it looks like it came from the business on the balance sheet. It will get caught by any good accountant, but can easily be overlooked by an interested buyer who is only looking at the cash balance. Another common method of doing this, which is not actually fraudulent at all, would be a restaurant or bar owner buying lots of drinks for people out of his own pocket and inflating the business’s receipts.
If that was the reason, why have the checks at all? Couldn’t the business owner just pay purely in cash? Giving someone a check and then saying “Just give that right back to me” sure sounds like a scam of some sort.
Their payroll process may have processed the checks as a matter of due course for the business. Employees were used to getting paid by check. They wanted to show the employees that “here’s your normal check…look at it, but we’re going to cash it for you.”
What if they used an outside company like ADP and the owner said, “For the next months we will not be issuing paychecks to anyone.” What sort of red flags would that raise?
Could it have simply been that the bank accounts themselves were being shuffled around over those few weeks (incorporating a new company that would buy the restaurant’s assets, or simply switching everything to the new owner’s bank) and the owner wanted to make sure that no paycheques were in circulation at the moment the old bank account was closed?
None whatsoever. It’s not that uncommon for a restaurant to shut down temporarily and stop paying all employees.
It’s none of the paycheck company’s business. They will do as asked, print the checks or direct deposit them, file the proper paperwork, make the required deposits, and give all the info to the tax authorities when it’s requested. Otherwise they want to keep their nose out of their customer’s business.
That actually makes sense. Nothing nefarious at all. The restaurant just “pre-cashed” all of the checks to make sure there were no outstanding checks for the account before it was closed. Probably better ways to handle it.
No, because that wouldn’t get past an accountant or the state tax authorities. It’s simply cooking the books to show more cash on hand and inflate the value of the restaurant.