His formula will require him to do about 10 per cent of his work in cash

Discussions of the cash economy are usually framed as “us” (100 per cent legit contractors) versus “them” (100 per cent cash contractors). It’s convenient for discussion, but we in the industry know that as a completely false paradigm. No one does all cash work.

Every year in our salary survey we ask you how much cash work you do. This year, 25 per cent of you said you collect up to 10 per cent of your income in cash (see the survey results here). 71 per cent did no cash work.In other words, almost all of our survey respondents say they run legit, above-board businesses that pay taxes, workers’ comp, etc. One in four of those “legit” contractors, after paying their taxes and workers’ comp, take a 10 per cent cash-work bonus.

I believe that is where the vast majority of the cash economy exists: It’s in that 10 per cent of work done by legit companies.

A good example: A friend was having above-board work done on his house that required custom-built doors. The legitimate price of the doors blew the budget, so the contractor found someone who would do the doors for cash at about 2/3 the legitimate price. Because it was done inside a legitimate contract, there was no chance of it being discovered. Because there was trust at every level of the transaction, the customer happily paid cash for the doors, and continued to pay for everything else above board.

There is a regulatory-cost tipping point that we all intuitively know. When it gets crossed, we find a way to mitigate those costs. A contractor friend of mine thinks he has found a formula to mitigate the onerous regulatory costs of running his legitimate business. In massively-taxed Ontario, his formula will require him to do about 10 per cent of his work in cash.

All indications are it takes at least a 35 per cent gross margin to do legitimate business in Canada. Contractors are struggling to make 25 per cent, but with his 10 per cent cash work idea, voilà – he feels he can feed his family. I am struggling really hard to find anything ethically wrong with his plan.