CASH PAY COMPLAINTS
INCREASING YOUR ODDS OF SUCCESS

Presented by Dan Smith

             The Underground Economy is a huge problem. The State has limited resources to address the problem. That is a fact not a judgment. Therefore to better accomplish our goal of cleaning up the underground economy, we have to be willing to do our part. This guide will help you understand what you can do as well as give you suggestions on how to best get it done. We have also included a checklist of information to provide the State Agency when you file your complaint or turn over your lead.

To the extent you are able to provide the information on the checklist, you will increase the odds of a successful investigation.

WHAT IS CASH PAY?

Cash pay is any scheme, method, or procedure used for the payment of wages, that is designed to avoid the payment of employment taxes and any other payroll related expense such as Workers Compensation, SDI, etc.

It is fundamentally important to understand this definition because many people confuse cash money with cash pay. Cash pay can be in the form of check, cash money, money order, barter or trade, service exchange etc.; just as any of the above including cash money may not be cash pay. The important factor is not the method of payment it is the intentional avoidance of taxes and other payroll obligations.  

Cash pay does not become illegal cash pay until after the due date for the taxes and other payroll obligations. Therefore an employer who may appear to be paying cash is indeed not paying cash if they pay all of their taxes and payroll obligations on or before their due date.

WHEN and HOW IS CASH PAID?

Remember cash pay is a scheme, which means the number of ways it can be implemented is only subject to the creativity of ones’ imagination. Here are some common ways: 

All employees are paid cash (under the table) all the time.
This is difficult for an auditor to prove since in order for this scheme to work nothing can be recorded at any time. The company and the employees are virtually invisible through conventional means. The company usually has no contractor’s license or any other documentation that they exist.

The company collects cash from the customer or cashes the check given to them at the customers’ bank. Payments are usually broken down small enough as to not draw attention.

To succeed this case will require you to supply a lot of information. This type of case needs to be built ‘backwards” where you start with what is known and construct the rest. Accomplishing this requires trade knowledge. Building a case backwards is discussed more later in this text.

Some employees are paid cash while other employees are not involved.
Employers sometimes pay a portion of their workforce, anywhere from 1 or 2 people to 20% or more in cash. It may be a group of permanent employees who do a particular type of work (anything that can be paid piece rate fits well into this) , people who do specialty work from time to time who might resemble subcontractors, or people who want to be invisible, such as persons who are being followed by wage garnishments, outstanding warrants, undocumented persons, etc. Again this is difficult for an auditor to prove without additional evidence because from the books alone the business appears to be legitimate.

Employees are paid cash for particular situations.
In this case all or most employees are paid cash for such things as overtime, weekend work, during the slow season when the employee is collecting unemployment, etc. This is a tough one for a couple of reasons. Most of the time the employees want this as much as the employer and assist in the process. Quite often the cash payment is disguised as some other legitimate payment such as travel compensation. 

Kickbacks
A common place for this to occur is prevailing wage work. An employer may have a separate checking account that is used only on prevailing wage projects. Employees then cash their checks at the same place, such as a bar or corner store. Employee signs their check for say $600.00 and the bar gives them $300.00 cash. This scheme can be used to kickback the difference between the prevailing wage and the employees normal wage or for a completely “under the table employee”. Another variation of this is when an employee is paid properly for their prevailing wage hours but then required to work additional hours, on other projects, non compensated until it balances out to their normal wage. 

Third party involvement
We have already talked about the check casher, who somehow profits from their involvement in that scheme, but there are many others. Employers often set up second companies. Employees will either from time to time, or consistently receive payment from both companies. Employees may not even know when or why this happens. If they ask they may be told “ the boss owns both companies and he subs work from one to the other”. At years end the employee will receive a W-2 from company A but nothing from company B.

Labor broker is another common scheme. An employer may ask one of his employees to get a contractors license, he probably will even pay the related costs. The employer writes checks to the employees’ “company” which the employee cashes and gives the cash back to the employer. For his effort he gets paid a little something from time to time.

Suppliers are sometimes used to disguise cash. An employer may run some of their employees through a supplier. This is common in high workers compensation rate industries like roofing. Sometimes it is used to deceive the workers compensation system, other times it is to disguise cash pay. In another scheme an employer over buys material from a supplier, which is never delivered. The employer then gets a money rebate for the material, that was never delivered, as damaged, broken, sample, or otherwise returned material.

These are just some of the schemes. As I stated the number of schemes is only limited by the imagination of those who wish to participate.

WHY DO EMPLOYERS PAY CASH? (under the table)

Using a cash pay scheme, if you don’t get caught’ significantly reduces costs and increases profits for the employer, while at the same time increasing the take home pay for the employee. Both parties benefit.

Cash pay is so prevalent that most people don’t think of it as illegal unless it is taken to extreme.

To compete, if the competition cheats I have to cheat to survive.

Cash pay is difficult to detect and prove and there are not enough people working enforcement. That is common knowledge.

Simply put, they are driven by NEED or GREED.

WHY DO EMPLOYEES ACCEPT CASH?

Almost the same as the employer, NEED, GREED or THEY ARE NOT GIVEN A CHOICE.

Some employees solicit cash to avoid employment detection. They may owe child support, taxes, or may be subject to a wage garnishment order.

They may be undocumented.

They might be having a tough time making ends meet and fifteen dollars per hour cash (under the table) buys more groceries than the take home pay from eighteen dollars taxed.

Some just want to work and go with the flow and don’t make waves so they can keep their jobs.

Some don’t like the Government or the tax system and feel justified working under the table.

They may be receiving other State or Federal benefits and would be disqualified if they are working.

The reason may also be, for both employer and employees, that they came here from a different country or culture and don’t understand, appreciate, or like the regulations in our State. If you ask a Mexican in Mexico if they pay taxes they will reply yes every time I buy something. He has a totally different understanding of the tax system.

PREPARING YOUR CASE

The reality is that even if the staffing numbers of all the State agencies responsible for investigating and enforcing the underground economy returned to the numbers they were in 1982, (the last time we had it good), the problem has grown so much since that they could not keep up. We have to help.

Enclosed in this packet is a checklist of information to gather when preparing a case to turn over for investigation. You will not be able to gather all of the information on every case. However the more information you supply the better the odds are for a successful outcome.

Cash pay is very difficult and time consuming to prove. No auditor will ever find an entry in an employers’ check ledger that says “ Cash – used to pay employees”. Every scheme has to be detected, investigated, and substantiated. They have to figure out if cash is being paid, to whom, when and how, how much, where did the employer get the cash, is anyone else involved, how does the employer hide the cash, and how long and how often does it occur. If the case is going criminal all of this must be proven in court. There are relatively few people employed by the State taking on a problem of mammoth proportion. It truly is another example of David taking on Goliath. If we can’t be another David at least we can bring them better stones.

We have a major advantage investigating the case. We know our industry, we know the people, we know the practices, and we know when something is not being done above board. Most of us have been involved in organizing campaigns so we know how to gather information. Preparing a case to turnover to a state agency is very similar. Here are a few suggestions of ways to gather the necessary information.

TIPS

Our contractors are constantly bidding against contractors who cheat. We often get phone calls from contractors complaining that a competitors’ bid was lower than their cost. Although at face value it would appear when someone's price is below a legitimate contractors cost there must be some kind of cheating occurring. But this alone proves nothing. It is not illegal in this state to lose money. Nor is it illegal to be stupid or to be stupid and in business. The low bidder may also be cheating in other ways that have nothing to do with labor. Tips can be very valuable in pointing you in the right direction but a lot work must be done before a tip becomes a complaint.

TALKING TO EMPLOYEES

Have you ever heard the old adage “if you don't ask you will never know”? Sometimes it can be that simple. I have had experiences where I have asked employees how much and how they were paid and have been told honestly X amount of dollars cash. This doesn't happen very often, but once and while it does. Although it may be accurate, this type of information is not usually very reliable. People may be very comfortable talking to you but it is doubtful that they will say the same things to someone working for the State. If you depend solely on witnesses you will fall short of your goal, in fact most times you'll fail. Too often witnesses change their story and rarely will they bring forward the evidence you will need.

USE YOUR ORGANIZING SKILLS

Build a relationship with the employees. Over time they will tell you much more that will help the case than the fact that they are receiving cash. Use your judgment in determining whether not you are going to tell the employees your intent. Remember, in a cash pay situation the employee is not paying taxes either and is afraid of prosecution. Take your time. If the employer is paying cash the chances are that it has been going on for a longtime and it will continue. Remember, as stated earlier, if the employer pays all other taxes and other payroll obligations on or before the due date there is no cash pay. If all your evidence is in the current quarter you have to wait anyway so take advantage of that time to learn from the employees. They can tell you many things. They can tell you when cash is paid, to whom, under what circumstances, who the employer deals with, suppliers, subcontractors, what landfill, where he buys gasoline, where he keeps his trucks, who gets the cash, where they get it, and much, much more.

MONITORING

Monitoring is an effective way of gathering information about an employer, however it must be done properly and consistently. Accurate records must be kept of all of your monitoring. It is also important to visit, especially a job site, more than once a day. Seven workers on a job site at 8 a.m. may be discussing whether not they can actually work that day, but the same seven workers on the job site at 3 p.m. is a pretty valid indication that they did work all the day. When monitoring record everything you may feel will be valuable later, license numbers on all vehicles, names on the vehicles, names of suppliers who may be delivering material, where the employees and the vehicles go, any names of employees you may know, the address of the jobsite and name of building and/or owner and of course always the date and time of your observance. Request and monitor such things as certified payroll, public agency bid awards, Dodge scans, builders exchange bid notices, and any other publications that may indicate jobs that the employer your investigating may have bid or have been awarded.

SALTING

Sometimes the most accurate and safest way to get information is to put someone on the inside. By putting someone to work for the employer over time your salt will be able to document exactly what is happening, when, and by whom. They will be able to get things you may not be able to get from other employees such as copies of checks. Remember sometimes cash pay is in the form of a check. The huge advantage to having an actual copy of the check is that the name of the bank and the bank account number are printed on the check, the account number does not appear on the check stub. There are drawbacks to salts. You must be careful not to assists in creating any of the illegal actions you are there to document. Even then some people believe any information gathered by union salts is tainted. If you use salts be honest and disclose what information was discovered by the salts. Often a salt is there for different reasons such as organizing, when they discover that the employer's paying cash. When that happens you have to decide how to handle the situation. Think it through carefully and if you turn over a lead or file a complaint make sure your motivation is consistent with other action you have taken when you were not involved in an organizing campaign.

BUILDING A CASE BACKWARDS

As an expert in your industry your knowledge is valuable when a case must be built backwards. By that what I'm referring to his when you have some information but what you're really looking for is missing. I’ll give you an example. I turnover a lead to an EDD auditor about a roof removal contractor who is paying cash. I only know of a few jobs the contractor has done and the audit does not show any other jobs. However, the audit does show that the employer has paid a lot of money to the local landfill. Records at the landfill show that the employer dumps a load on average three times per week. The average weight of each load is 2800 pounds. The obvious question becomes if the employer is not doing any work why does he need to go to landfill so often? We know the answer, the answer is, he is working. What we have to do is determine how much he is working based on the only known we have, the debris being dumped the landfill. By talking to experts in the field such as ourselves, our contractors, and even nonunion contractors the auditor can determined how much roofing debris weighs, and how many employees and how long does it take to remove a known weight of roofing debris. The same scenario could happen in any trade. A painting contractor claims not to be doing much work but he spends a lot of money at a paint supply company, or at the equipment rental place. Every trade has an example.

Whichever method you use you need to be thorough, honest and accurate. At the end of your investigation you should be able to paint a pretty good picture of what is going on.

TO WHOM DO YOU TURN THE CASE OVER

That is a good question because most of the time you will find violations that fit into different State or Federal agencies. Some people would suggest sending the complaint to every agency and letting them figure it out. I disagree. If you have one area of violation or major and minor violations then file with the agency that handles the major violation. If you have a host of violations or violations covered by more than one agency go with what works, whichever agency does the best job. I can’t say which because that changes from area to area and with time. In 1982 I filed most of my complaints with DSLE, now I use EDD more often, in between I have filed with every other agency.

The best thing to do is build a relationship with the people who work for the various agencies. Once you get to know each other better and develop a working relationship you will find that it is that partnership that will make thing work better.

AFTER THE CASE IS TURNED OVER

Stay in touch and make yourself available to help if needed. Don’t harass or try to force the case in the direction you want it to go. Don’t expect to be told all the details. Your lead or complaint does not give you any more rights to information than any other person. Stay in touch with any witnesses and help them understand the process. Bring forward any new developments that you think might have an impact on the case.

CONCLUSION

Labor Law enforcement has been given a higher priority by Governor Davis. A lot has happened since the last time this much attention was paid to the underground economy. The economy has grown tremendously, and the State Agencies charged with enforcement have dwindled. Cash pay is so prevalent that most people involved don’t even consider themselves to be breaking the law. Some people get locked into a system of cash pay and feel there is no way out.

Considering the magnitude of the problem the only chance we have is to work together with the State. Get to know the enforcement people in your area, spend time with them, teach them, and learn from them.

This guide is not complete - it only scratches the surface of what really needs to be done. Many of you have thoughts and/or experiences that are were not covered. E-mail or send them to me and I will update the document to include them. We are going to post this document on our web site at Roofer95.com. We are doing this to keep all of you informed as well as any curious employers who might be wondering if anyone is doing anything. My E-mail address is Dsmith23@ix.netcom.com or Dsmith@roofer95.com .

CONSTRUCTION CHECKLIST

IT MAY NOT BE POSSIBLE TO PROVIDE ALL THE INFORMATION LISTED. ALL INFORMATION YOU PROVIDE MUST BE AS ACCURATE AS POSSIBLE AND VERIFIED TO THE BEST OF YOUR ABILITY. ALL ACCURATE INFORMATION YOU PROVIDE WILL BE OF GREAT ASSISTANCE IN THE INVESTIGATION OF YOUR CLAIM.

1. Name of business.
2. Name of owner.
3. Address of business.
4. Address of owner.
5. Major assets of owner, second home, boat, plane etc.
6. Phone number of business.
7. Cellular numbers (owner, managers, superintendent, foreman) Cellular provider
5. Address where business materials and supplies are stored.
8. Address where business trucks are stored.
9. License plate numbers of business trucks.
10. How many days a week does the company operate?
11. How many crews does the business use?
12. How many people on each crew?
13. What are the classifications of the workers?
14. Where does the company get it’s workers?
15. Are any of the workers related to the owner? Each other?
16. How long have workers worked for this employer?
17. If workers do not speak English, what language do they speak?
18. How much do the workers earn per hour per job classification?
19. How are workers paid - cash or check
20. Where/how does the company get the cash to pay the workers?
21. When are they paid? By the day, weekly? On a certain day. Time of day.
22. Where are they paid?
23. Who pays them? Name, title, and relationship to company
24. What bank(s) does the employer use?
25. Who signs the checks?
26. Do have a copy of a check?
27. Addresses of jobs.
28. Name of owner of job.
29. Owners address if different.
30. Owners phone number.
31. License plate numbers of workers on the jobs.
32. Names of workers who will sign affidavits.
33. Names of workers who will be witnesses.
34. Pictures or videos of workers doing their jobs. Be sure film has date and time on the photograph and if there was a witness that was there when the pictures were taken.
35. Name of any other company working as a sub-contractor on the job.
36. Name of material supplier.
37. Names of any businesses the company does business with including landfill, gasoline, realtors, homeowners association, etc.
38. Copies of any contractor advertisements ( yellow pages, news paper, fliers, etc.)

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