Cash Payments
Though cash payments are still used, this practice tends to be limited to day laborers who work for short periods. It is not a recommended payment approach, as it requires a considerable amount of labor to calculate and distribute cash; it also presents a high risk that the large quantities of cash on hand for payroll may be stolen. To make cash payments, follow these steps:
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Calculate the amount of gross pay, deductions, and net pay due to each employee. This can be calculated manually or through the use of payroll software.
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Write a check to the local bank for the total amount of the payroll that will be paid in cash. This check will be converted into cash.
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Determine the exact amount of bills and coins required to pay each employee; the form used in Exhibit 9.2 can assist in this process. To use the form, list the net pay due to each person in the second column, then work across the form from left to right, listing the number of the largest denominations allowable that will pay each person. For example, to determine the exact number of bills and coins required to pay the first person in the form, John Anderson, determine the maximum number of $20 bills that can be used, which is six. His net pay is $129.12, so six $20 bills will reduce the remainder to $9.12. The next largest useable denomination is the $5 bill, of which one can be used, followed by four $1 bills. This leaves coinage, of which one dime and two pennies are required to complete the payment. Then cross-foot the form to ensure that the bills and coinage for all employees add up to the total amount of the check that will be cashed at the bank.
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Highlight the totals row on the form. Take the completed form to the bank, along with the check, and requisition the correct amount of each type of currency.
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Obtain a set of pay envelopes, which can be simple mailing envelopes with a stamped, fill-in-the-blanks form on the outside. An example of this stamp is shown in Exhibit 9.3. This stamp separately lists the regular and overtime hours worked, and then combines this information into a single total earnings amount from which standard deductions are made, with the net pay figure noted at the bottom. If there are other deductions, such as for employee purchases, 401k deductions, and so on, the stamp can be altered to include these items. Write the total earnings, deductions, and net pay in the spaces provided (see the exhibit). This gives each employee a complete breakdown of how his or her pay was calculated.
Employee Name
Wilbur Smythe
Pay Period Beginning Date
May 8
Pay Period Ending Date
May 15
Hours Worked
Regular: 40
Overtime: 5
Hourly Rate
Regular: $ 10
Overtime: $ 15
Earnings
Regular: $ 400
Overtime: $ 75
Total Earnings
$ 475
Pay Deductions
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Social Security Tax
$ 29
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Federal Income Tax
$ 100
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Medicare Tax
$ 12
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State Income Tax
$ 47
Total Deductions
$ 188
Net Pay
$ 287
Exhibit 9.3: Stamp for Pay Envelope -
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When an employee takes receipt of his or her pay envelope, there must be some evidence that the money has shifted into that person's possession, to prevent later claims of not having been paid. This issue is readily solved by creating a pay receipt, an example of which is shown in Exhibit 9.4. This receipt allows you to manually list the name of each employee and the amount of money paid. Each employee must sign this document at the time of cash receipt. It is also useful to have them enter the date on which they received the cash, as evidence against claims that monies were paid out later than the state-mandated date.
For Pay Period Ended May 15, 2003
Employee Name
Cash Paid
Date Received
Employee Signature
Barclay, David
$231.14
May 19, 2003
David Barclay
Fairchild, Enoch
$402.19
May 19, 2003
Enoch Fairchild
Harley, Jeff
$300.78
May 19, 2003
Jeff Harley
Jimenez, Sandra
$220.82
May 19, 2003
Sandra Jimenez
Nindle, Allison
$275.03
May 19, 2003
Allison Nindle
Exhibit 9.4: Pay Receipt
The main problem with the form shown in Exhibit 9.4 is that each employee signing the receipt can see the net amount paid to every other employee on the list, which breaches the confidentiality of employee pay rates. If this is a problem, use a separate pay receipt page for each employee.