boss paying under the table

A reader writes:

I work for a very small company that is having cash flow problems. For the past few months the boss has been paying the employees our net wages in cash, not giving us payslips, and not paying any tax to the government. He simply expects us not to report this income on our tax returns.

We are all unhappy about this, concerned that it might get us into trouble, but he said the alternative was to fire one of us so he can afford the taxes. He says he’ll return to regular paychecks when he can.

What do we do? If one of us is audited, will we be in trouble or does he take all the blame?

What your boss is doing is illegal, and unfortunately, if you and other employees go along with it, you will be breaking the law too. Specifically, your boss is breaking the law by not paying payroll taxes or withholding taxes, and you and your coworkers would be breaking the law if you don't report the income.

His reasons aside, what he's doing opens you all up to criminal prosecution, fines, and even the possibility of jail time. Plus, if you or your coworkers ever need to file unemployment, workers comp, or disability claims, your benefits could be denied because you won't have a way to prove your earnings -- and it could also affect your Social Security earnings down the road.

I recommend that you and your coworkers approach the boss as a group and tell him that you know that he's trying to avoid a difficult staffing decision, but that he's jeopardizing himself, the business, and all of you with his current "solution." Perhaps there are other alternatives to laying someone off that you could suggest -- maybe you're all willing to work four days instead of five, at four-fifths your current salary, or other things along those lines. Ultimately, though, it's your boss' responsibility to figure out what to do without breaking the law.

I'd also start job-searching, as these aren't good signs.