Unreported Employment - Beneficial Unreported Employment

Beneficial Unreported Employment

Many new entrepreneurs make their first part-time hires under-the-table. The complexity of employment regulations and large amount of paperwork can be daunting to a new entrepreneur, especially when they only need someone for a few hours a week. Some contend that this under-ground, early-stage employment is a vital step in the growth of a healthy above-ground economy.

Day laborers play an important role in some segments of the construction and landscape industries. They fill an immediate gap in labor shortages. Background checks, identification, required paperwork, and government filings for a single day's work is prohibitive, so of necessity, day laborers become part of the underground economy and their employment is rarely if ever reported.

A large amount of micro employment (work that is only performed for a day or two) is done under-the-table. Although nanny laws make allowances for micro employment (a baby sitter, or lawn mowing) for the homeowner, businesses are typically required to fill out and file several hours worth of paperwork even for an hours worth of work. The dollar amounts are too small for tax collecting agencies to pursue and the paper work too arduous to file, so legitimate micro-employment among businesses is rare. However, micro employment is an important resource for many small businesses.

In professional fields like Architecture, or Marketing, moonlighting is the typical first-step to starting a legitimate 'above-ground' business. Again, filing paperwork and compliance and knowledge of labor laws are prohibitive for the small amount of work performed. Although illegal, the small revenue stream generated by these side-businesses are rarely pursued by tax enforcers. As side-work increases, a professional employee is able to leave their employer and become independent. At this point, paperwork is usually filed and self-employment taxes reported. This business then becomes a legitimate and beneficial part of the 'above-ground' economy.

Those who are unlikely to find employment through the 'above ground' economy including those with past criminal records (or current warrants) and undocumented workers can be reasonably productive and self-sufficient thereby keeping them from engaging in less desirable activities like theft and drug-use.

Self-employment in cottage industries is often unreported at first. A home-cook for example, may sell a few pies to friends and co-workers without filing necessary sales taxes or self-employment taxes. Although technically illegal, this may lead to a legitimate and beneficial business and is often how small businesses are started.

Short-term youth employment is often unreported but very beneficial. A teenager hired to aid in constructing a shed or barn, for example, teaches him/her valuable skills and responsibility. Most youth would not be employed for short-term projects if employment had to be reported. Government revenue collectors typically ignore enforcement of this form of beneficial, unreported employment. Youth-run lemonade stands that have been shut down by police for example, have received an enormous amount of bad press and public out-cry.

Although controversial, some argue that because illegal immigrants are unable or unlikely to take advantage of unemployment, welfare, and retirement benefits, they are less likely to be unemployed and are more likely to contribute to a productive society. This view also argues that in states that rely primarily on sales tax as revenue instead of income tax, these illegal immigrants may contribute more in government revenues than the government benefits they receive thereby creating a net positive revenue stream for the governing body.