Unreported employment; working under the table, off the books, cash-in-hand, illicit work or (in UK English) moonlighting, is illegal employment that is not reported to the government. The employer or the employee often does so for tax evasion or avoiding or violating other laws. The working contract is made without social security costs, and does typically not provide health insurance, paid parental leave, paid vacation or pension funds. It is a part of what has been called the underground economy, shadow economy, black market 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 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 nations, 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 types of employment sectors of unreported jobs include the following:
- Domestic work, such as housekeeping, babysitting, or foodservice
- Construction work, landscaping, farm work
- 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
- Short-term work and day laborers
- Short-term youth employment
- Barbacking and restaurant work.
- Human trafficking
- Fixing cars, motorcycles, and mopeds
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 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 (see agorism)
- 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, illegal immigration, 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 (eg gender, sexuality, ethnic/religious affiliations etc)
- Ability to hire those who were formerly qualified, and still potentially able to do the job -- eg blacklisted, disbarred, forced retirement, struck off, etc
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 study showed that the economy in California was particularly weak by more than two million workers being paid without paying taxes. Indeed, it's 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 illegal 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, or abuse of employer.
If practices are widespread, legitimate businesses may be undercut by and have difficultly 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.
Many new entrepreneurs fail to report their first part-time hired employees. The complexity of employment regulations and large amount of paperwork can be daunting to a new entrepreneur, especially when someone is needed for only a few hours a week. That early underground early 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 paper work 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 business 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 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 of 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.
It has been argued that because illegal immigrants are unable or unlikely to take advantage of unemployment, welfare, and retirement benefits, they are less likely to be unemployed and are more likely to contribute to a productive society. That view also argues that in states that rely primarily on sales tax as revenue instead of income tax, illegal immigrants may contribute more in government revenues than the government benefits they receive thereby creating a net positive revenue stream for the governing body.
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. Lawn-mowing 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 illegal 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 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 except for the most egregious cases.
According to a The New York Times report in February 2013, the Obama administration had demonstrated a new strategy to curb the employment of illegal immigrants by focusing on companies that hire them in the first place. By concentrating on the businesses employing the large numbers of illegal workers, the number of illegal immigrants working in the US would drop dramatically. The U.S. government would be doing so in a less confrontational manner than they had in recent years.
American Apparel incident
In 2009, American Apparel was convicted of having workers that partook in illicit work. About 1,800 of American Apparel's employees were illegal immigrants who were not authorized to work in the United States. No federal agents stormed into the company's factory demanding the employees to be deported, but rather sent a written notice that stated that American Apparel faced civil fines and would have to fire all workers who were unauthorized to be in the United States.
- 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
- US Immigration and working under the table
- European Foundation for the Improvement of Living and Working Conditions
- In US English, moonlighting is working at a second job, whether or not it is reported.
- Feige, Edgar L. (2016). "The Meaning and Measurement of Unobserved Economies: What do we really know about the "Shadow Economy"?". Journal of Tax Administration (30/1).
- Feige, Edgar L. (December 11, 2003). "Defining And Estimating Underground And Informal Economies: The New Institutional Economics Approach". World Development. 18 (7): 989–1002. doi:10.1016/0305-750x(90)90081-8.
- Colin C. Williams (2005). A Commodified World?: Mapping the limits of capitalism. pp. 73–74.
- Feige, Edgar L. & Cebula, Richard (January 2011). "America's Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S." Retrieved 2012-03-05.
- Feige, Edgar L. (September 2009). "New estimates of overseas U.S. currency holdings, the Underground economy and the "Tax Gap"". Retrieved 2012-03-05.
- Abate, Tom (24 June 2011). "Weak outlook for state seen / Many are working under the table, UCLA group says". The San Francisco Chronicle.
- McDermott, Jennifer (3 September 2017). "Side hustles and tax evasion: The telling statistics". finder.com.
- Porter, Eduardo (19 June 2006). "Here Illegally, Working Hard and Paying Taxes". The New York Times.
- Preston, Julia. "US Shifts Strategy on Illicit Work by Immigrants". The New York Times. Retrieved 8 February 2013.