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https://brisbaneacfe.org/library/occupational-fraud/ghost-employees-frauds-payroll-frauds/
WHAT ARE GHOST EMPLOYEE FRAUDS?
A ghost employee is someone recorded on the payroll system, but who does not work for the business. The ghost can be a real person who knowingly or not is placed on the payroll, or a fictitious person invented by the dishonest employee. The fraud attacks the payroll system with false employees.
The aim of the fraud is to have a wage paid to the ghost and collected by the dishonest employee. This is done by entering the ghost employee into the payroll system. The fraud does not require an accomplice but, depending on how wages are paid, an accomplice may make the fraud easier to conduct as it will eliminate any need to convert the payment from the ghost to the dishonest employee.
This applies if he hired a fake person and collected the paycheck himself, or if he hired a real person without them knowing and collected their paycheck himself. Him hiring a real person to do a real job, no matter how ridiculous or minuscule, and then paying that person normally is legal.
TL;DR if he hired his wife to stay at home and smoke weed all day, that would be legal. This is California, no one cares about weed right?
That said sure, tip off the IRS that something is fishy. Any real business should prepare for and survive an audit.