What might seem like a quick financial benefit can lead to significant long-term costs and consequences for workers, businesses and company directors.
Workers paid cash-in-hand or ‘off the books’ miss out on superannuation, workplace protections and other employment entitlements, like annual leave, long service leave and public holidays. They can be overwhelmed with additional tax liabilities, penalties and interest if income isn’t declared and later identified. Workers may also discover they can’t verify their income when applying for loans, mortgages, or rental properties, or that their superannuation hasn’t been paid when they go to retire.
Paying workers correctly is one of the most important responsibilities of running a business. Employers that deliberately avoid their obligations may face audits, substantial tax liabilities, penalties up to 100%, interest charges and, in serious cases, prosecution. But the consequences can also be personal. Company directors are personally liable for PAYG withholding and super debts. In some cases, they may be prevented from leaving Australia until their debts are paid or funds can be recovered from their personal bank accounts through ATO garnishee action.
The following case study highlights what can happen when employers do the wrong thing.
Case study: Perth restaurant group hit with 2.8 million bill for hidden cash sales
Rita and Dan operate a chain of fast-food restaurants across Perth. Although each business had its own ABN, they shared directors, employees, and financial arrangements.
We audited the group and found they had failed to:
- report significant cash sales
- pay staff through payroll systems, instead paying them in cash
- withhold and remit PAYG withholding amounts
- pay workers super guarantee entitlements
- maintain adequate employee payroll records.
As a result, the businesses were issued with liabilities of more than $2.8 million for income tax, GST and super guarantee obligations as well as over $1 million in penalties and interest. The penalties and interest related to making false or misleading statements and failing to meet their obligations
Despite providing the directors multiple opportunities to address the group's growing tax debts, they failed to take appropriate action. Instead, we commenced recovery action, including issuing garnishee notices on bank accounts and merchant facilities to recover the outstanding amounts. These actions reinforced the serious consequences of failing to meet tax and super obligations.
End of exampleWe take this type of shadow economy activity seriously. These actions are illegal and create an unfair advantage over honest employers who are meeting their obligations. It also reduces funding available for essential services the Australian community rely on, while significantly impacting individual workers’ retirement savings and their financial security.
How to get it right
To help meet your employer obligations:
- report all income, including cash payments
- withhold, report, and pay PAYG withholding correctly and on time
- pay super guarantee contributions for all eligible workers in full, on time and to the right fund
- maintain accurate records of all business transactions, including employee details, hours, wages and super payments
- seek advice from the ATO or your registered tax practitioner early if you're having difficulty meeting your obligations.
Meeting your obligations helps protect employees, supports business sustainability and contributes to a fair and trusted tax system.
Learn more about employer obligations, including PAYG withholding and super guarantee, and our efforts to tackle the shadow economy. You can also speak to a registered tax practitioner for advice.
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