Your Uncle is a poor role model for his children, he is aware cash-in-hand is illegal but has paid his employee for 3 years in this way. So he wasn't aware she was an illegal immigrant at first but now he is continuing to act illegally and is trying to get round the law.
Yes the children may be too young to understand now but over time they will find out.
It is clear that there is plenty of money in the family how much has been obtained by failing to pay other taxes?.
You are also abetting a criminal because that is what your Uncle is. Come clean take the rap. Children are very adaptable.