Unfortunately, your employer is creating a problem by not reporting your wages. If you are an employee, your employer needs to withhold and pay over your portion of payroll taxes, along with the employer's portion.
If your employer is deducting the cash he pays to you as a business expense, and he is audited, he won't have the requite supporting documentation to show he properly reported the income paid to you.
There are a variety of problems being created that could result in the employer being liable for the employee's portion of the payroll taxes, penalties or even criminal prosecution depending on the extent of the fraud. It just isn't worth it - it is best to properly report and pay the correct tax.
If you aren't sure how you should be treated, the IRS has a form you can submit to get an answer from the IRS. Similarly, if your employer gives you a 1099 but you think you are an employee, there is another form you can file with the IRS when you file your tax return to make sure you receive the benefits to which you are entitled.
Noncompliant employers can participate in the IRS' Voluntary Compliance Program and receive some relief for the past, but taxpayers should make sure they understand the rules and requirements.