Social Protection and Revenue investigations are under way into suspected welfare fraud by workers in ethnic restaurants who are receiving cash payments while claiming income support and other welfare payments.
Legitimate restaurateurs are understood to have complained after discovering they are being undercut by rivals who pay very low wages.
This allows staff, who have gained Irish citizenship after being here for five years, to avoid tax and make substantially more income through cash payments and welfare fraud.
While the low wages are declared to Revenue on the restaurants' books, staff can claim income supplements and rent allowance and other supplements, they say.
Low wages are then topped up with tips and other non-declared cash earnings, allowing workers to earn more than staff working in legitimate restaurants who properly pay tax and PRSI.
The practice is said to be widespread and is threatening the restaurants who have been in business for decades and pay PAYE and PRSI.
Adrian Cummins, chief executive of the Restaurants Association of Ireland, said yesterday that the practice indicated that there has been a lack of "joined-up thinking" between Revenue and Social Protection but he hoped that the matter would be properly investigated "jointly" by the two departments.
"If there is a law being broken, that is something that needs to be dealt with by the authorities. The law should be upheld. There is a disconnect between Revenue and Social Protection and if this practice is threatening the existence of legitimate restaurants then they need to be talking to each other. There are fundamental issues here and if it is true that they are doing wrong that should be dealt with. There needs to be a proper investigation.
"People have invested their life savings to set up in restaurant businesses and they need to be protected by this form of subsidised labour."
It is understood that some restaurant owners are receiving advice from people with accountancy skills about declaring that they are paying their staff just under the €350 per week limit at which those with Irish citizenship can claim benefits, and then have their wages topped up with cash. The illegal declaration of such low wages also means they can claim medical card cover.
Industry sources said that, aside from social welfare and revenue fraud, there was also said to be widespread abuse of non-Irish staff working in ethnic restaurants.
Many staff are working "in slave conditions", while waiting to serve out the five-year period before they claim citizenship. The Government has stated that it is cracking down on welfare fraud and claimed to have uncovered 900,000 fake claims totalling around half a billion euro in the last year.
However, language difficulties and the cost of hiring translators has caused investigations into the ethnic food and restaurant sector to be difficult.
The Department of Social Protection has only 90 special investigators, although staff have received training to spot fraud.
The department said it was "on course" to make savings of €645m this year from stopping fraudulent claims out of a total annual bill of €21bn for welfare payments.