You are in: Home > Taxes

The Payroll Tax Rip Off

07th March 2011
By Willard Michlin in Taxes
RSS Legal RSS    Views: N/A

I noticed a trend about 20 years ago. The trend went from undeclared cash payroll to employees being declared on the business books. It started with automotive businesses and then moved into restaurants. It now can be found in many industries. The construction industry still has not caught on to this interesting trick yet. They still operate on many undeclared cash wages.

Let me explain. If you do not have workers compensation insurance for your employees you can be fined for each employee not covered as well as sued personally by the employee if they are injured on the job. This puts pressure on the underground cash economy to put every employee on the payroll, thereby paying all payroll taxes required and workers compensation insurance premiums. Being very shrewd Americans, many did not put all of the employee’s income on the books but only a portion. The portion was the amount necessary to cover minimum wages for a 40-hour workweek. There are 2080 hours of work in a year.

For example when minimum wage was $7.00 per hour, I found that each employee showed they received a salary of $14,560 each year, on the books. That meant that all federal, state and workers comp insurance payments were paid on only the minimum wage amount. All wages above that amount continued to be paid in cash.

When a business buyer looks at the expenses of a prospective business he may be misled by the wage expense shown on the books.

Willard Michlin is a CPA, and offers assistance in the key areas involved in the buying of a business: Due Diligence and Business valuation. He is an experienced, honest and trustworthy consultant. He has published many articles and is in demand as a public speaker in the Southern California business community. You can write to Willard at and he will always answer your questions. He can also be contacted at his Ventura County, California office by calling 800-864-0420. See other articles and information about his services at:
This article is copyright
About the Author
Occupation: Business Broker, CPA
The purpose of the Kismet Business Brokers is to connect up sellers and buyers for their mutual benefit.

With 30 years experience in the field of real estate and finance and a vast array of other fields, Kismet is uniquely qualified to render assistance. The founder and Broker of Kismet Business Brokers, Willard Michlin, is well known for his ability to keep both sellers and buyers talking with each other until a mutually beneficial agreement can be reached. He is also genuinely interested in helping people.
Bookmark and Share

Ask a Question about this Article

powered by Yedda