No offense to our resident curmudgeon, Scott, but I’d skip the morality lecture (you’re his employer, not his dad) and inform him matter-of-factly that you are obligated by law to comply with certain procedures in terms of your payroll and that you are not willing to undertake anything illegal or immoral to accomodate his situation. Period.
BUT…that shouldn’t be the end of the story…you now know that you have an employee who is willing to cheat his own child. Can you still trust him with your resources? Is he the type of person you want representing you in the community? If it were me…he’d be gone.