What are Cash Wages?
Cash wages are compensation for employees that come in the form of spendable money. Cash wages can include actual cash currency, checks, and money orders. This type of compensation excludes benefits like health insurance and 401(k) contributions and stock compensation.
Understanding Cash Wages
For the average worker, cash wages represent the bulk of compensation. The amount of cash compensation for a given job is generally determined on a competitive basis, especially in a tight labor market. If a company pays a worker $75,000 in salary for a certain role, another company must offer more or less the same amount to recruit a worker for a similar role that is vacant. For lower skill level jobs, cash wages can comprise the entirety of compensation; i.e., there are no additional benefits such as health insurance, tuition payments, or transit reimbursement.
At upper echelons of a corporate structure, cash wages decline as a proportion of total compensation. This is true at a company that has an equity compensation plan to offer stock incentives for executives to meet specified performance targets or for long-term retention purposes. It is not uncommon for a large public company to pay less than a quarter or a third of compensation in the form of cash salary to top managers, with the rest in the form of equity. A battery of additional perquisites such as country club memberships, financial advisory services, spending allowances, first-class travel privileges, etc. are frequently offered to executives as non-cash compensation.
Reporting Cash Wages
The recipient always reports cash wages as ordinary income to tax authorities. Wage-earners must pay taxes out of these wages, regardless of how it is paid out. Employers must withhold payroll taxes and report employee wages. In certain types of trades such as food and beverage service, construction, child care, and other personal services, some workers and employers pay cash wages "under the table" to avoid paying income and payroll taxes, but it is illegal to do so.