Venmo, PayPal, Zelle and similar payment platforms have become a common part of doing business.
But for employers paying workers outside of a traditional payroll process, it can create significant challenges during a workers’ compensation audit and potentially complicate claims handling.
The issue is whether employers can provide the documentation needed to accurately account for payroll, worker classifications and labor exposure. Work comp audits are designed to determine who worked for a business, what duties they performed, what they were paid and whether they should have been covered under the policy. Cash-app payments often make those questions harder to answer.
Why documentation matters
Workers’ compensation premiums are based largely on payroll and the work employees perform. During an audit, employers may be asked to provide records showing:
- Who was paid
- What duties they performed
- How much they earned
- Whether payments included overtime, holiday pay or other compensation
- Whether workers were employees or independent contractors
Traditional payroll systems are designed to capture and organize this information. Cash-app transactions generally are not.
In many cases, transactions contain limited (or zero) details and may not clearly identify the individual who received payment. Some users operate under nicknames or account names that don’t match official business records, making it difficult to verify who was actually paid.
Challenges during a claim
Clear payroll records are important for more than just audits.
When an employee is injured, wage information may be needed to help determine benefits. Payroll records typically show hours worked, dates paid and other wage information. Cash-app transactions typically don’t provide the same level of detail, making it a challenge to reconstruct earnings if questions arise after an injury.
Reconciling labor expenses
Cash-app payments can also make it difficult to reconcile labor expenses and determine the true payroll exposure of a business.
Work comp payroll calculations often require specific distinctions between regular wages, overtime pay, holiday pay and other forms of compensation. Without detailed payroll records, it may be challenging to determine how payments should be treated for workers’ compensation purposes. Premium auditors also need to understand the type of work that was performed, which may not be evident from a payment app transaction.
The same concerns can arise when businesses make frequent large cash withdrawals. During an audit, employers may be asked to provide documentation showing whether those funds were used for labor, materials or other business expenses.
What employers can do
The best approach is to maintain clear, consistent payroll records regardless of how workers are paid.
Employers should be able to document:
- The identity of the worker
- The work that was performed
- The amount paid
- When the work was completed
- Whether the worker was an employee or independent contractor
- Any supporting invoices, contracts or payroll records
Good recordkeeping helps support accurate premium calculations, simplifies the audit process and provides important documentation if a workplace injury occurs.
The bottom line
Cash apps may offer convenience, but they often lack the documentation workers’ compensation auditors and claims professionals rely on.
Employers who use these payment methods should ensure they have other records that clearly capture payroll and labor information. Maintaining complete and verifiable records can help avoid surprises during an audit and make the claims process smoother in case of a workplace injury.