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Paying Cash In Hand To Employees

Cash in hand

Paying your employees ‘cash in hand’ at the end of the working week or month can seem like a murky world to many business owners. After all, there is something of a stigma surrounding it, suggesting that somehow you’re both taking part in an activity that might not be strictly illegal but is certainly a grey area. And because of this, many business owners have the same question as you: Is cash in hand illegal?

Is Cash In Hand Illegal? 

No, paying your employees cash in hand is a legitimate way to ensure your employees are paid promptly and it’s completely legal. Of course, certain cautions need to be taken to ensure this is done ‘above board’ because there are complex tax implications associated with paying cash in hand that could land business owners in serious trouble if it isn’t handled correctly. 

With that said, the UK government even provides advice on paying employees cash in hand, so it’s a perfectly legal way to pay salaries as a business owner if that’s how you choose to do business. 

What Are The Benefits Of Paying Cash In Hand To Employees?

You may be wondering when paying cash in hand could be beneficial to you. After all, it’s important to look at different ways of doing things in business to innovate and encourage business growth – and that includes the way others choose to pay their employees’ salaries. Below is a list of the most common benefits of paying cash in hand:


For many businesses paying cash in hand to employees is simply a convenience. If you deal with cash often as part of your business then it may simply be easier for you and your employees to pay what is owed at the end of each day, week, or month. 

Some businesses, areas of work, and job roles this can work well for include: 

  • Hospitality 
  • Hairdressing 
  • Retail 
  • Mechanics
  • Plumbing services
  • Electricians 
  • And many more


Now, it won’t work for every business and employee in these areas, but it certainly can if both the employee and employer are in agreement that it’s a more convenient arrangement for them. 

Straightforward Process 

We will cover the tax implications later, and these are not always straightforward, but if you have a small business with a small number of employees, then the process can be incredibly simple. For some business owners, paying in cash is all they’ve ever known and changing to a more modern PAYE system can be more complex. 

The more employees you have the more complicated it can be to keep track of paying cash in hand, so it certainly won’t work for larger businesses who would almost certainly benefit from an automated salary system like PAYE.  

Not All Employees Have Bank Accounts 

It’s also important to note that not all employees handle their finances in the same way. And whilst it can be a difficult decision for many to get their heads around, not all employees have a bank account to receive their salary by choice.

The mark of an excellent manager/owner is somebody who can adapt to their employees’ individual needs. Knowing how to cash in hand payments work is vital for all business owners because you never know when you might need to utilise the method to help an employee in your future. 

Flexible Work Options 

Many businesses and employees prefer working with more flexible arrangements, and that can look a little different for everyone. Perhaps you’re a cafe owner who only needs help when it gets busy during events in your town or city at the weekend, or maybe you’re an ice cream shop owner offering seasonal work for your employees. 

In circumstances like the ones above, it can be much easier to pay cash in hand to your employees because it gives you both some flexibility, and it also means your employees can have access to the money they’ve earned right away – an attractive prospect to many. 

Things To Consider When Paying Cash In Hand To Employees

It’s important to note that paying cash in hand doesn’t somehow exempt you as a business owner from the typical workplace laws and rules. 

One important part of paying cash in hand to employees is making sure that they understand their rights. You MUST explain to them that there are other options available if they prefer, but more importantly, you have to explain that all of their rights and entitlements are still present. Things like:

  • Holiday pay 
  • Sick pay 
  • Maternity/paternity pay
  • Bonuses 


And any other important information relating to their pay must still be in place, even when paying cash in hand. As an employer, it’s your job to ensure that your employees understand that they are entitled to these same benefits, regardless of if they are being paid through an automated system or cash in hand. 

You’ll also have to keep strict records. Every penny you give to your employees will need to be carefully monitored to ensure the right national insurance contributions and taxes are being paid. 

Does The National Minimum Wage Still Apply?

Yes, the national minimum wage still applies even when paying cash in hand, and it’s important that you, as the employer, make sure this happens. You should also make your employees aware that even though they’re being paid cash in hand, they’re entitled to the national minimum wage as a minimum. 

You can, of course, pay more than the minimum wage. 

Paying Cash In Hand: Tax Implications

As mentioned above, national insurance contributions and taxes will all need to be paid as normal, just as it would be through a traditional PAYE system. So how do you ensure this takes place? 

Well, the most efficient way to ensure everything is paid is to pay your employees their net income, rather than their gross income, when you pay them cash in hand. This will need to be explained to your employee if this is how you choose to do it. 

In this situation, you would deduct all the relevant contributions from their gross pay. These contributions could include:

  • Income tax
  • National insurance 
  • Pension 
  • PAYE payments


However, you choose to handle the tax and national insurance payments are left to the discretion of the employer. But the bottom line is, that HMRC will need to be aware, and the relevant payments will need to be made. 

An Alternative Arrangement

If you decide not to deduct the relevant taxes and contributions before paying your employees, and instead opt to give them their gross pay (i.e. everything they’ve earned without the relevant deductions) then you will need to explain to your employee their responsibility. 

When you pay your employee their gross pay cash in hand, you need to explain that they are now responsible for paying their national insurance and income tax. In order to do that, they’ll need to register for an assessment

After registering, it will be your employees’ responsibility each year to file their tax return, just as anybody who is self-employed must, and then pay their taxes and national insurance. To ensure you aren’t held responsible or fined by the HMRC, it’s best to keep detailed records of your employee’s pay, and to make it clear that you’ve explained their responsibility in paying their taxes and national insurance. 

Do I Still Need To Supply A Payslip?

Choosing to pay your employees cash in hand doesn’t mean you don’t have to supply them with a payslip. If you choose to pay them their net pay, rather than their gross pay, a payslip can be an excellent way for you to effectively communicate their deductions to them. 

If you decide to create your payslip for your employees, then the following information must be included:

  • How much they earned (their gross pay)
  • Income tax deductions
  • National insurance deductions
  • Any additional deductions (pension, if they’re part of one, etc.)
  • Their PAYE number
  • How much money they’ll take home (their net pay)
  • A note making it clear that they’ll be paid in cash


It’s also wise to include the period the payment relates to, their tax code, and the number of hours they worked, to ensure everything is clear.

Including this full range of information will cover you in the event of complications, and ensure your employee receives the relevant information they’re entitled to. 

Will I Need To Report Anything To HMRC?

When completing your usual Full Payment Submission (FPS) and final submission at the end of the year, you’ll need to explain how you’re paying all of your staff. If you’re paying them in cash, this should be explained. If you’re paying them their net or gross pay, this should also be explained. 

Essentially, you should treat your cash-in-hand employees the same as any other employees you have that might be paid through the PAYE system into their personal bank accounts. 

Full guidance on what to report is found here: ‘Payroll Information To Report To HMRC’.

Repercussions Of Failing To Report Cash In-Hand Payments Correctly

As a sensible business owner, you won’t try to defy the law, but some try to do so to avoid their tax and national insurance contributions. It’s important to note that the penalties for businesses that deliberately try to mislead HMRC and avoid their tax contributions are severe, and the individuals responsible will be caught and punished. 

These punishments range depending on the severity and the longevity of the fraud (because that’s what it is to deliberately avoid your contributions – fraud). But you can expect to receive hefty fines and penalties for failing to report the cash-in-hand payments you make to your employees as a minimum.

Cash In Hand vs. PAYE

Paying cash in hand to employees is legal, and sometimes it’s a wonderful option for your business. If you work frequently with casual or seasonal workers and deal with cash regularly, then paying cash in hand can be a legitimate way to pay your employees’ salaries so long as both you and they agree to it. 

But this doesn’t work for all businesses. The larger your business, the more employees you have, the more difficult it becomes to pay cash in hand. That’s where PAYE (or Pay As You Earn) comes in handy. It’s an automated payroll system that ensures you’re doing everything legally as an employer and ensures that your employees receive the pay and information they are entitled to. 

Deciding which is best for your business is up to you. However, if you aren’t used to paying cash in hand, then the PAYE system may be the safer option. That way you can ensure you’re compliant with employment and tax laws, and that your business stays on HMRC’s good side. 

Is Cash In Hand Illegal: Conclusion

No, cash in hand is not illegal, and it can work for some businesses. If you decide that paying cash in hand to your employees is right for your business, then you must provide them with all the information upfront. You’ll need to explain their options and also explain their entitlements and rights regarding things like their sick pay, holiday pay, and maternity/paternity pay. These will all be the same as those being paid through the PAYE system. 

To ensure you comply with employment and tax laws, you must pay your employee national minimum wage as a minimum. It’s also a good idea to consider paying them their net pay, rather than gross pay, as it allows you to make sure their tax and national insurance is paid correctly. 

If you decide to pay them their net pay, it’s also vital that you provide them with a payslip detailing how much they’ve earned and the deductions that were made. This will help them understand their pay and support them directly in paying the taxes they owe. 

In short, paying cash in hand to employees may not be for everybody, but it can certainly work for some businesses. Ensure you’re on the right side of the law and compliant with all rules and regulations regarding paying employees cash in hand, and it can be a legitimate, legal, and sensible route for some business owners. 



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