Unclaimed or returned paychecks are a real hassle; just ask any bookkeeper, especially one in the construction industry. They mess up your bank reconciliations because they are always outstanding; and seriously, what are you supposed to do with them other than throw them in a desk drawer and hope you remember where you put them!
Can you just void the checks and be done with it?
As a bookkeeper or business owner do you know what your responsibilities are for handling unclaimed or returned paychecks?
The answer is pretty simple — NO, you cannot keep an uncashed or unclaimed paycheck; believe it or not, you MUST turn them over to the state where that person last worked. Oh, it gets even better; you can be fined or penalized if you don’t turn these checks over to the state — even if the former employee can’t be found.
You are probably wondering, “Why the heck do I have to turn the check over to the state?” And that’s a good question too!
There is a common law doctrine called escheat (meaning surrender) on the books in each and every state; that requires unclaimed property (in this case wages) to be returned (surrendered) to the state, and not kept by the person who has it.
Escheat laws vary by state, but most states do have a requirement that the company who issues the check (your company) make a good faith effort or attempt to find the ex-employee and give him/her the paycheck. A good faith effort would include sending a certified letter (return receipt, forwarding address requested, etc.) to the employee’s last know address. When that certified letter is returned with no forwarding address information – DO NOT OPEN IT, but rather keep it intact; this will help you to prove to the state that you did your due diligence in trying to locate the former employee. Usually you have a one-year limit from the time the paycheck was dated to do this.
Under escheat, the checks become state property if not claimed by the owner with 1-7 years, depending upon the state.
Business owners holding unclaimed wages are required to submit certain information to the state while they hold the uncashed checks. The report must be filed annually and contain the following information:
- Employee’s name
- Employee’s last known address
- Description of the abandoned property (in this case “wages”)
- The date the wages became payable
- The dollar amount involved, and
- The date of the last transaction with the employee
To find out about the escheat laws for your state, begin by doing a search on “escheat” and your state name. Or go directly to the website of your state treasurer, department of revenue, or other taxing agency to find the specifics. Remember, each state has their own rules – escheat is not a Federal Law, but rather a State Law.
Ignorance of the law is no excuse, so if you have a desk drawer where you’ve been stashing uncashed paychecks – – now is a good time to clean it out!