Restaurants Paying under the Table Can’t Get Government Help
As small businesses across the country apply for the second round of the Paycheck Protection Program (PPP), some New York restaurants find they are benefitting much less than others. These are the restaurants who pay cash wages.
Among all the industries in the nation, the restaurant industry has been hit the hardest by COVID-19. The National Restaurant Association estimates that the industry lost $240 billion in sales between last March and December.
Since Jan. 11, the launch date of the second round of PPP, around $85 billion in funding has been approved for small businesses requesting less than $100,000, according to the U.S. Small Business Administration (SBA) on Feb. 10.
However, many small restaurants’ access to government funding has been hindered by their practice of paying employees cash under the table. A Malaysian chef who has been in the business for over a decade was hesitant even to discuss the topic. “Stop asking me about PPP,” he said. “We pay wages in cash; we can’t apply for PPP.”
This strategy of paying employees wholly or partially in cash, without reporting the full numbers to the government, has long been identified as a common method of evading taxation by the IRS.
After years of partially evading taxes, some restaurants are afraid to show proof of their payroll as required by the SBA in order to apply for PPP. The Malaysian chef is not alone when he says, “We worry the government will find out we cheated on our taxes.”
Others are getting much less help from PPP because of these “envelope wages.” At an Upper West Side Chinese restaurant, the owner used to pay each employee roughly $1,000 of each month’s salary by check and the remaining $2,000 tucked in an envelope. In other words, only $1,000 was reported. As PPP compensates restaurant owners with two and a half months of workers’ salary, this restaurant owner received only $2,500 for each employee — significantly less than the $7,500 he would have gotten from reporting his workers’ full salary.
In comparison to owners from other communities, immigrant restaurant owners are far more likely to pay cash wages, according to Professor Min Zhou, current Director of the UCLA Asia Pacific Center and one of the leading sociologists of immigration. She described this phenomenon as so widespread that “probably two thirds of them pay workers in cash.”
But why would they do something like this? Professor Zhou describes it as a “survival strategy,” without which many small, immigrant-owned restaurants would be likely to close. The restaurant industry has a profit margin as low as 6.5%, according to a Forbes report in 2018. With such a slender profit margin, many small restaurants encourage customers to pay cash, which goes unreported to the IRS, and later finds its way to their workers. This can be especially appealing to undocumented immigrant workers who are unable to open a checking account.
During the epidemic, this old informal means of survival has made life even harder for restaurants, because the need to hide wrongdoing prevents them from getting formal outside help. “They’re in the informal economy,” Zhou, the sociology professor, said. “So, when the government has disaster relief money, it doesn’t get to them.” Zhou frowned as she added: “That’s why the restaurant business is so vulnerable.”
The New York State Restaurant Association has taken various actions to help restaurants stay afloat, including putting on “a ton of free webinars throughout the course of this pandemic,” according to Kathleen Reilly, its NYC Government Affairs Coordinator. But when asked about the dilemma met by restaurants who pay cash wages, Reilly responded very differently. “I haven’t heard about these people,” she said. “It sounds like they’ve got some kind of financial skeletons in the closet, and they’re worried it’s going to come back to haunt them.”
