Paying employees in cash: what’s legal

The Fair Work Ombudsman’s frequency of pay guidance sets out the rule: employees must be paid in money, using one method or a combination of the permitted methods. Wages can’t be paid ‘in kind’, such as with food, goods or accommodation in place of money.

• Frequency: most awards and agreements say whether pay is weekly, fortnightly or monthly. If yours is silent, pay at least monthly.
• Amount: cash must still meet the minimum rate under the award, agreement or National Minimum Wage, plus any penalty rates, loadings and allowances.
• Proof: the Ombudsman suggests that when you pay in cash, you and the employee both sign a record confirming the amount paid each pay period.

This applies to employers and employees in the national workplace relations system, which covers most private-sector employers.

Cash wages are salary or wages for tax purposes. Work out the withholding amount, keep it aside, and pay it to the ATO by the due date that applies to your withholding status. Under the ATO’s Single Touch Payroll rules, your STP report is due on or before payday.

There is also a direct cost to getting this wrong. Under section 26-105 of the Income Tax Assessment Act 1997, you can’t claim a tax deduction for wages if you were required to withhold and didn’t, or withheld but didn’t report the amount to the ATO. The ATO explains this on its page on removing deductions for non-compliant payments.

If you find a past failure to withhold or report, the ATO says a voluntary disclosure in the approved form, made before it starts an audit, may let you avoid penalties or keep the deduction.

Super can’t be paid in cash to the employee. It goes to their super fund through SuperStream, and under Payday Super you calculate it each payday instead of quarterly. Some exceptions to the 7-business-day deadline apply, such as for new employees.

• Super guarantee applies to employees aged 18 or over, and to under-18s who work more than 30 hours a week.
• Late contributions attract the super guarantee charge, which from 1 July 2026 is assessed by the ATO and includes interest and an administrative uplift amount.
• You now report both qualifying earnings and super liability through STP.

Use the Payday Super cost calculator to see what each pay run will cost in contributions.

An envelope of cash with a figure written on it doesn’t meet the pay slip rules. A pay slip must show:

• the employer’s and employee’s names, and the employer’s ABN if it has one
• the pay period and the date of payment
• gross and net pay
• for hourly employees, the ordinary hourly rate, the hours worked at that rate and the total paid at that rate
• any loadings, allowances, bonuses, penalty rates or other separately identifiable amounts
• each deduction, and the name (or name and number) of the fund or account it was paid to
• super contributions made or to be made for the period, and the fund they go to.

Giving a pay slip you know is false or misleading is unlawful.

Under the Ombudsman’s record-keeping rules, records must be legible, in English and readily accessible to a Fair Work Inspector. They can’t be changed except to correct an error. For cash pay, this means keeping the rate, hours, gross and net amounts, deductions and super for every pay period, plus the signed receipt if you use one. The full list is in employer record-keeping obligations.

The ATO’s record-keeping rules require most records to be kept for 5 years. Keeping everything for 7 years satisfies both.

You can’t hold back part of a cash payment for till shortages, breakages or uniforms unless the deduction rules allow it. Section 325 also stops you requiring an employee to spend or pay back money where that is unreasonable or for your benefit. Paying the full rate and then asking for some of it back in cash is a ‘cashback scheme’, which is unlawful, and the employee is entitled to recover the money.

• Reverse onus: if you didn’t keep records or give pay slips and have no reasonable excuse, a court can require you to disprove an employee’s underpayment claim.
• Criminal offence: since 1 January 2025, intentionally underpaying wages or entitlements, including super, can be a criminal offence under section 327A. Honest mistakes aren’t covered.
• Tax: loss of deductions for unreported wages, plus ATO penalties for failing to withhold or report.
• Super: the super guarantee charge on late or missing contributions.