What is the disadvantage of cash in hand?

The Disadvantages of Cash-in-Hand Payments

Cash-in-hand payments, also known as under-the-table payments, are a common practice in many industries. While they may offer some benefits to both employers and employees, there are also several significant disadvantages to consider.

1. Unprotected and Undervalued

One of the biggest disadvantages of cash-in-hand payments is that they leave employees unprotected and undervalued. When employees are not paid through a formal payroll system, they do not have access to vital safeguards such as:

• Sick pay: Employees who are paid cash-in-hand may not receive any compensation if they are unable to work due to illness or injury.
• Redundancy benefits: If an employee is laid off or their job is eliminated, they may not be entitled to any severance pay or other benefits if they are not paid through a formal payroll system.
• Pension contributions: Many employers who pay cash-in-hand do not make pension contributions on behalf of their employees. This can have a significant impact on employees’ retirement savings.

2. Lack of Formal Contracts

Employees who are paid cash-in-hand often do not have formal written contracts. This can make it difficult for them to enforce their rights if there is a dispute with their employer. Without a contract, employees may have difficulty proving that they were owed wages, overtime pay, or other benefits.

3. Vulnerable to Exploitation

Employees who are paid cash-in-hand are more vulnerable to exploitation by their employers. Employers may be more likely to underpay, withhold wages, or force employees to work excessive hours without overtime pay if they are not being paid through a formal payroll system.

4. Tax Evasion and Fraud

Cash-in-hand payments can also be used to evade taxes and commit fraud. Employers who pay their employees cash-in-hand may not be reporting their income to the tax authorities. This can result in lost tax revenue for the government and unfair competition for businesses that pay their employees legally.

Conclusion

While cash-in-hand payments may offer some benefits, there are also several significant disadvantages to consider. Employees who are paid solely in cash risk precarious employment, are not protected by vital safeguards, and are more vulnerable to exploitation. Employers who pay their employees cash-in-hand may also be engaging in tax evasion and fraud. It is important for both employees and employers to be aware of the risks associated with cash-in-hand payments and to weigh these risks against the potential benefits.