CSLB Contractor's Law & Business Practice Exam

Can a contractor legally pay employees in cash?

1. No, it is completely illegal

2. Yes, with documentation provided to employees

3. No, but only for short-term workers

4. Yes, but only through direct deposit

The correct answer is: Yes, with documentation provided to employees

A contractor can legally pay employees in cash, but this must be done with proper documentation and adherence to tax reporting requirements. When paying in cash, it is essential that the employer provides each employee with accurate records of their earnings, including documentation that outlines the hours worked and the wages paid. This is critical for compliance with labor laws and for the employees' tax obligations. Additionally, employers are required to report these wages to the IRS and state labor departments, ensuring that all payroll taxes are properly withheld and filed. Therefore, while cash payments can be legal, they come with specific responsibilities and requirements for documentation to ensure both the contractor and the employee remain compliant with the law. In contrast, the other options present misunderstandings about cash payments. It is not completely illegal to pay in cash (so option A is incorrect), short-term workers can also be paid in cash legally if all conditions are met (meaning option C does not hold), and while direct deposit is a legal payment method, a contractor can choose to pay in cash regardless of that option (making option D misleading).