Is Paying Employees in Cash in Toronto, Canada, Legal or Not?

It is a common practice for employers to pay their employees in cash. However, the legality of such payments can be quite perplexing, especially in a jurisdiction as stringent as Toronto, Canada. This article will delve into the specifics, addressing the legality of cash payments, the role of the Canada Revenue Agency (CRA), and the importance of proper tax compliance.

The Legal Perspective: Making Cash Payments to Employees

According to Canadian law, as long as the cash payments are properly recorded and reported to the Canada Revenue Agency (CRA), they are legal. This means that if you adhere to all the necessary reporting protocols and ensure that the information is accurately documented, cash payments to employees are acceptable.

Example of Proper Reporting

As one worker mentioned, if both parties agree, an employee can be paid in Bitcoin. While this form of payment is less common, it is still legal if converted to Canadian Dollars and reported to the CRA. This ensures that all relevant taxes and deductions are accounted for, fulfilling the legal requirements.

Proper Record-keeping and Compliance

The necessity of maintaining proper documentation cannot be overstated. It is essential to keep signed receipts from employees and record working hours. These records should be maintained for a minimum of four years to ensure compliance and serve as evidence in case of audits or disputes. While employers may not receive direct benefit from collecting taxes, they play a crucial role in ensuring that the government's services are funded and that the tax system functions smoothly.

Shared Experience

Another individual's anecdote highlights the practice of using cash payments before the widespread adoption of cheque payments. Their father received cash pay packets, and the employer began issuing cheques eventually. This demonstrates that there is no law prohibiting cash payments outright; rather, it is the proper recording and reporting that is crucial.

The Risks of Non-Compliance

Failing to report cash transactions with employees can lead to significant legal and financial consequences. It is illegal to agree to pay someone in cash with the intention of not reporting the income. This form of tax evasion is not only unethical but also illegal, and the person receiving the payment might be subject to tax penalties and interest.

A cashier's experience working at a grocery store also emphasizes the importance of transparency and record-keeping. As long as the transaction is not concealed from the CRA, cash payments to employees are legal. However, if the payment is made with the intention of avoiding taxes, it becomes illegal, and both the employer and the employee can face serious penalties.

Conclusion: Best Practices for Employers

To ensure compliance and avoid legal issues, employers should:

Ensure all cash transactions are accurately recorded. Keep detailed records of working hours and payments for at least four years. Report all cash payments to the Canada Revenue Agency (CRA). Follow best practices for tax compliance.

By following these guidelines, employers can protect themselves and their employees from legal troubles and ensure that all payments are conducted in a transparent and legal manner.