Is It Illegal To Pay Cash In Hand In New Zealand?

No, it isn't illegal to pay someone in cash in New Zealand just because the payment is made with notes or coins. It becomes a problem when cash is used to hide income, avoid PAYE, underpay wages, skip leave entitlements, or avoid records. As a practical rule, keep tax records for at least 7 years and wage, time, holiday and leave records for at least 6 years.

For a small business, the real question isn't whether cash is allowed. It's whether you can prove what was agreed, what was paid, what tax was handled, and whether the worker received their legal entitlements. If you can, a cash payment can be perfectly ordinary. If you can't, a simple cash job can quickly become a tax, employment and record keeping issue.

Cash in hand is one of those phrases that can mean totally different things depending on who you ask. Sometimes it simply means paying someone in cash instead of by bank transfer. Other times, it's used to describe under the table payments where wages or income aren't recorded, tax isn't paid, and obligations like holiday pay or KiwiSaver are ignored.

What Does Cash In Hand Mean?

In New Zealand, cash in hand isn't a formal legal term. It's a common expression, and it's usually used in two very different ways.

1) Paying In Cash As A Normal, Recorded Payment Method

This is where you pay wages, an invoice, or a one off amount in cash, but you still do everything properly. For example, you record the payment, process payroll if the person is an employee, keep receipts, and include the transaction in your accounts.

In other words, the payment method is cash, but the arrangement is still transparent and compliant.

2) Cash Jobs That Are Not Declared Or Recorded

This is the version people usually mean when they talk about under the table jobs. It can include arrangements where:

• income isn't declared to Inland Revenue
• PAYE isn't deducted even though the person is an employee
• minimum wage, holiday pay, sick leave, or other entitlements are ignored
• no wage, time, invoice, receipt, or accounting records are kept
• the business calls someone a contractor when the working relationship is really employment

That's where the legal problems start. The issue is usually not the cash itself. It's what the cash payment is being used to avoid.

Is It Illegal To Pay Cash In Hand In New Zealand?

Paying cash in hand is not automatically illegal in New Zealand. You can pay a worker or supplier in cash if the arrangement is genuine, properly recorded, and tax and employment obligations are met.

Cash payments become unlawful or risky when they're used to avoid legal obligations, including:

• tax compliance, such as PAYE deductions, income tax reporting, GST reporting, and proper accounting records
• employment law compliance, such as minimum wage, holiday pay, sick leave, wage and time records, and written employment terms
• worker classification, meaning whether the person is genuinely a contractor or is really an employee
• consumer law compliance, if cash payments from customers are being used to hide sales or avoid obligations under the Fair Trading Act 1986 or Consumer Guarantees Act 1993

If you're an employer, you can't contract out of minimum employment standards just because a worker agrees to be paid cash. A worker saying they're happy with cash in hand won't fix unpaid PAYE, missing leave, or a below minimum wage arrangement.

If you receive cash from customers, that's still business income. It should be recorded like EFTPOS, card, or bank transfer income. If your business is GST registered, cash sales are still relevant to your GST position. For the tax details, it's worth checking your process with your accountant or bookkeeper.

Is It Legal To Pay Employees In Cash?

Yes, you can pay employees in cash, but the employee must still be treated like an employee. Cash doesn't turn employment into something informal.

If the person is your employee, you generally need to:

• have a written employment agreement that reflects the role and pay arrangements
• pay at least the current minimum wage for every hour worked
• process PAYE and other payroll deductions correctly
• meet Holidays Act 2003 obligations, including annual holidays, public holidays, sick leave, bereavement leave, family violence leave, and alternative holidays where relevant
• keep accurate wage, time, holiday and leave records for at least 6 years
• provide KiwiSaver information and make employer contributions where required

The adult minimum wage and other rates can change, often from 1 April. Before setting or reviewing pay, check MBIE's current minimum wage rates and make sure your payroll system is up to date.

If you're hiring staff, a clear Employment Contract is one of the best starting points. It should set out the role, pay, hours, leave, trial or probation terms if used correctly, confidentiality, workplace policies, and how changes to hours or duties will be handled.

Casual Employees Still Have Rights

A short term or casual arrangement isn't a no rules arrangement. If someone works one weekend, fills a shift, or helps during a busy period, they may still be an employee depending on the reality of the arrangement.

Casual employees can still have minimum wage, payroll, record keeping and leave entitlements. If you use casual staff, it's worth checking how casual workers' leave entitlements apply to your business, especially if shifts become regular over time.

Are Cash Jobs And Under The Table Jobs Illegal?

A cash job isn't illegal just because cash is used. An under the table job is usually illegal because it's deliberately kept off the books.

Common red flags include:

• paying a set amount in cash with no payslip, receipt, invoice, or accounting entry
• recording fewer hours than the person actually worked
• telling staff that cash means there's no tax or leave
• paying below minimum wage because the worker is a student, friend, family member, backpacker, or casual helper
• using cash to avoid KiwiSaver, holiday pay, ACC levies, or PAYE
• offering customers a cash price only if the sale isn't recorded

These arrangements can cause problems for both sides. For the business, the risk can include tax assessments, penalties, interest, employment standards investigations, arrears for unpaid wages or leave, and reputational damage. For the worker, undeclared income can affect their own tax position and make it harder to prove what they earned.

There's also a practical evidence problem. If a worker later says they worked extra hours every week and you have no reliable records, it becomes much harder to show what really happened. Good records protect you as much as they protect the worker.

Cash Discounts For Customers

You can usually offer a cash discount to customers if the pricing isn't misleading and the sale is still recorded. For example, a cafe may charge one price for card payments and a lower cash price if the difference reflects genuine payment costs and is presented clearly.

Your obligations to customers don't disappear because they paid in cash. If you sell goods or services, you still need to comply with the Fair Trading Act 1986, including rules against misleading conduct, and the Consumer Guarantees Act 1993, including consumer guarantees around acceptable quality and reasonable care and skill.

Contractors, Cash Payments, And The 2026 Gateway Test

Many cash in hand issues start with a simple sentence: we'll just call them a contractor. That can work if the person is genuinely running their own business and providing services to you. It doesn't work if the reality is employment.

If you're engaging a genuine independent contractor, paying cash can be lawful if the payment is recorded and supported by an invoice or receipt. A tailored Contractor Agreement can help set out the scope of work, fees, invoicing, intellectual property, confidentiality, liability, and termination rights.

From 2026, the Employment Relations Act 2000 changes include a contractor gateway test. In broad terms, if a business meets the gateway criteria, the worker will be treated as a contractor for employment status purposes. The criteria focus on factors such as having a written agreement that says the worker is an independent contractor, not restricting them from working for others, giving them genuine flexibility around work or subcontracting, and not punishing them for declining extra tasks or engagements.

If the gateway test isn't met, the usual employment status assessment can still apply. That assessment looks at the real nature of the relationship, not just the label in the contract. Control, integration into the business, who provides tools or equipment, financial risk, ability to work for others, and whether the worker is really operating a business on their own account can all matter.

Practically, this means your documents and your day to day behaviour need to match. If your contractor has fixed shifts, wears your uniform, uses your systems, can't work for anyone else, has no real ability to decline work, and is paid like staff, cash payments won't make the arrangement safer.

If you're unsure whether someone should be a contractor or employee, it's worth fixing that before payment problems build up. You can also use a broader compliance review, such as a Legal Health Check, to identify where your contracts and processes may need attention.

Worked Example: Extra Weekend Shifts Paid In Cash

Imagine you run a small retail store. Your employee Maia is paid $25 per hour through payroll for weekday shifts. In December, you ask Maia to work an extra 8 hours on a Saturday. At the end of the day, you hand Maia $200 cash and say you'll keep it simple.

The number looks straightforward: 8 hours x $25 = $200. But there are two very different ways this can play out.

If The $200 Is Paid Off The Books

If you don't record the 8 hours, don't process payroll, and don't include the payment in Maia's wage records, you may have created several issues at once:

• PAYE may not have been deducted or reported correctly
• Maia's wage and time records are inaccurate
• holiday and leave calculations may be wrong because the extra work was ignored
• your accounts don't properly show your labour costs
• if Maia later raises concerns, you may not have evidence of what was paid

Even though $200 was actually paid, the off the books method creates avoidable risk.

If The $200 Is Processed Properly

A safer approach is to record the extra 8 hours in payroll at $25 per hour, showing $200 gross wages. Your payroll system then calculates PAYE, KiwiSaver and any other relevant deductions using Maia's tax code and settings. You can then pay the net amount in cash, have Maia acknowledge receipt, and keep the wage and time records with your normal payroll records.

The amount of cash handed over may not be exactly $200 because the correct deductions have been applied. That's the point. The business has still used cash, but it hasn't used cash to avoid payroll obligations.

The same thinking applies to contractors. If a photographer invoices your cafe $600 for a one off shoot and you pay cash, keep the invoice, record the payment date, obtain a receipt, and include it in your accounts. The cash isn't the problem. Missing records are.

How To Pay Cash Legally: A Step By Step Checklist

If you want the convenience of cash without the risk, treat cash like any other payment method. The following steps help keep your business on track.

1. Identify the relationship. Decide whether the person is an employee, casual employee, or genuine contractor based on how the work actually operates.
2. Use the right document. For employees, use a written employment agreement. For contractors, use a tailored Service Agreement or contractor agreement.
3. Record the work. Keep hours, dates, rates, tasks, deliverables, invoices, rosters, approvals, and any changes to the arrangement.
4. Process payroll where required. If the person is an employee, record gross wages, deductions, net pay, leave and KiwiSaver correctly, even if the net pay is handed over in cash.
5. Check minimum entitlements. Confirm the total pay meets the current minimum wage and that holiday, leave, public holiday and other entitlements are calculated properly.
6. Keep proof of payment. Use receipts, signed acknowledgements, petty cash records, accounting software entries, or bank reconciliation notes that show who was paid, when, and why.
7. Include cash income and expenses in your accounts. Cash sales and cash payments should be visible in your books. Speak with your accountant about tax coding, GST, and IRD filing requirements.
8. Protect personal information. Employee and contractor records contain personal information. Store them securely, limit access, and handle them consistently with the Privacy Act 2020 and your Privacy Policy and internal practices.
9. Review arrangements as they change. A one off contractor can become an ongoing worker. A casual worker can become regular. Update the contract and payroll treatment when the reality changes.

Small businesses often run into trouble because an arrangement starts informally and then quietly becomes permanent. A weekend helper becomes a regular staff member. A contractor starts working set hours under close direction. A cash discount becomes an unrecorded sales process. Regular reviews help you catch these issues early.

It's also worth training managers not to make side arrangements with staff. A well meaning manager who offers cash for extra shifts can accidentally create payroll, leave and record keeping problems for the whole business.

Key Takeaways

• Paying someone in cash isn't automatically illegal in New Zealand. It becomes unlawful or risky when it's used to avoid tax, PAYE, minimum entitlements, or records.
• If the person is an employee, cash doesn't change your obligations under employment law, including minimum wage, Holidays Act entitlements, KiwiSaver and wage and time records.
• Cash jobs and under the table jobs are different. A properly recorded cash payment can be lawful, while an off the books arrangement can expose your business to serious risk.
• Contractor labels need to match reality, especially with the 2026 contractor gateway test and the continuing focus on the real nature of the working relationship.
• The safest approach is simple: use the right contract, process payroll or invoices correctly, keep receipts and records, and include cash in your accounts.
• Customer cash payments still count as business income, and your Fair Trading Act and Consumer Guarantees Act obligations still apply.

If you'd like help with employment contracts, contractor agreements, pay arrangements, or business compliance documents, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.