USA Paying Under the Table, and How to Fix it

Joined
Jun 29, 2015
Messages
2
Reaction score
0
Country
United States
Hi Everyone,

I provide consulting services to small business on their accounting policies and procedures, and came across a client with a tough situation that I was hoping you all could help me solve. He runs a small start-up company, and since the beginning of this year he's been paying his 5 employees cash under the table. After telling him of the legal and financial consequences of this practice, he has agreed it's best to go with a more legitimate payroll system going forward. The issue that I can't seem to solve is this: How do we go about fixing the past 6 months of payroll that was paid in cash to the employees? How can we resolve this so that at year end, he can report proper figures for his payroll expenses?

Any information you all can give me will be most helpful. Thanks!
 

smallbushelp

VIP Member
Joined
Jun 22, 2015
Messages
191
Reaction score
20
Country
United States
To begin with, the business will need to get a FEIN if it doesn't already have one. Then, you will need to register the business with the proper state agency for withholding, unemployment and any other payroll taxes require by the state. Next, have each employee complete an IRS Form W4 and Form I9. If the workers can provide the proper identification to complete both forms, then good. If any of them can't, they should not be employed by the business.

Next, your client will have to "recreate" the payroll checks that have already been paid in his accounting system. What accounting software does your client use? Since the wages have already been paid, there will be no federal or state withholding recorded but the paychecks need to calculate FICA and FUTA taxes payable. But since those taxes were not withheld from the employees, your client is going to be responsible for paying both the employer and employee portions.

Then, the business should file the federal Form 941 and any forms required by the state for the first two quarters of 2015 and pay all taxes due. Those are the basic steps that need to be taken. There may be others that pop up along the way. Also, be sure to determine if the business is required to have workmens comp insurance.

If your client needs assistance with getting this done, I am available to help.
 
Joined
Jun 29, 2015
Messages
2
Reaction score
0
Country
United States
Thanks for the help. What if he hasn't recorded anything in his accounting system yet though? This is a new business and they haven't had an accountant or bookkeeper, so the records are an absolute mess. I don't think he even has records of how much he's paid everyone and when.
 

smallbushelp

VIP Member
Joined
Jun 22, 2015
Messages
191
Reaction score
20
Country
United States
If your client doesn't have any records of how much or when he has paid people then it's going to be almost impossible to recreate the transactions. Can he guess or estimate something? Talk with the employees maybe? He's going to need something to base past activity on or just start now and go forward.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top