Is it legal to pay employees in cash? Information for UK employers

There are a lot of questions that employers have when it comes to paying employees. Is it legal to pay employees in cash? What are the tax implications? How do I withhold income tax and National Insurance Contributions (NICs)?

In this article, we will answer all of your questions about paying employees in cash in the UK. We will also provide guidance on what you need to do to stay compliant with the law.

https://youtu.be/JpoxFxmJTjs

Is it legal to pay employees in cash?

Yes. Paying employees in cash is perfectly legal in the UK. However, there are a few things that you need to keep in mind as an employer. Read on to learn more.

Withholding tax and National Insurance

First of all, you need to make sure that you withhold income tax and NICs from your employees’ wages. You can do this by using the PAYE system.

It is important to note that you must withhold tax and NICs even if you are paying your employees in cash. If you do not, you could face penalties from HMRC.

What are the tax implications for employers?

When you pay your employees in cash, there are a few tax implications that you need to be aware of, but these are fundamentally the same as if you were paying your employee by bank transfer or other method.

First of all, as mentioned above, you need to make sure that you withhold income tax and NICs from your employees’ wages. You can do this by using the PAYE system.

Secondly, you will need to pay employer’s NICs on your employees’ wages. This is something that you should factor into your budget when you are planning to pay your employees, whether in cash or not.

Lastly, you will need to file a return with HMRC at the end of the tax year. This is so that they can calculate how much tax you owe on your profits.

What are the benefits of paying employees in cash?

There are a few benefits of paying employees in cash:

First of all, it is a simple way to pay employees. There is no need to set up a bank account or make any other arrangements.

It can also be easier for employees to budget when they are paid in cash.

Finally, paying employees in cash can sometimes help you reduce payroll costs.

What are the drawbacks of paying employees in cash?

There are also a few drawbacks of paying employees in cash:

If you’re not careful, it can be difficult to keep track of how much you have paid your employees.

Additionally, you may need to hold onto large amounts of cash, which can be a security risk, both for your office environment, and for your employees carrying home their cash on payday.

Finally, if you do not withhold income tax and NICs from your employees’ wages, you may be liable for penalties. These penalties can include interest and fines, so it is important to make sure that you are compliant with the law.

Providing payslips

You need to make sure that you provide your employees with a payslip. This should include all of the relevant information about their wages, deductions, and entitlement to paid leave.

Is it a legal requirement to provide employees with a payslip?
Yes. It is a legal requirement to provide employees with a payslip in the UK. More information can be found in our guide to payslips.

Tips for paying employees using cash

If you want to pay your employees in cash, there are a few things that you need to do:

First of all, you need to make sure that you have enough cash on hand to cover all of your employees’ wages.

Secondly, you need to make sure that you provide each employee with their own envelope containing their wages.

Finally, you need to make sure that you keep accurate records of all cash payments made to employees.

Business risks of paying employees in cash

While paying employees in cash is legal, it does come with some risks.

For example, if you are paying a large amount of cash to one employee, they could be targeted by criminals.

Additionally, if you lose track of your cash payments, it could be difficult to reconcile your records.

If paying your employees in cash, you may not be eligible for some types of payroll insurance – read our guide to payroll insurance.

What records do employers need to keep?

If you are paying employees in cash, you need to make sure that you keep accurate records. This includes a record of all cash payments made to employees, as well as a record of each employee’s tax and NIC deductions.

What format should these records be kept in?

There is no set format that you need to keep these records in, but it is important that they are clear and concise. You may want to consider keeping a spreadsheet or using accounting software to help you keep track of your cash payments.

What happens if an employee disputes some aspect of their cash payment?

If an employee disputes some aspect of their cash payment, you will need to investigate the matter and make a decision. If you find that you have made a mistake, you will need to rectify the situation as soon as possible.

Is it better to pay employees by bank transfer?

There are a few advantages to paying employees by bank transfer. First of all, it is more secure than paying in cash.

Additionally, it can be easier to keep track of payments made by bank transfer. Also, you will not need to hold onto large amounts of cash.

Ultimately, the decision of how to pay your employees is up to you. Just make sure that you are compliant with the law and that you keep accurate records.

Frequently asked questions