Handling Unclaimed Or Uncashed Paychecks: Rules Vary By State

October 6, 2010

Unclaimed or uncashed payroll checks handled incorrectly by an employer can result in serious trouble. This can be a particularly difficult issue for businesses with large payrolls. Prior to implementing a policy on handling this issue, there are several issues to consider.

Rules for unclaimed or uncashed paychecks are set by state abandoned property laws. Employers cannot keep the money from uncashed paychecks. Most states require unclaimed wages be turned over to the state of the employee's last know address after a period of time.

Employers must continually try to contact the employee before deciding that wages are abandoned property. If there is no valid employee address, the funds are returned to the state where the business operates. Companies must act. Failure to do so can result in costly penalties.

Later, if the funds are not available to pay the employee or to submit to the state, the employer and officers could find themselves under a breach of fiduciary responsibility. If the courts find the actions intentional, the court could find criminal intent.  Once a check is issued for wages to an employee, those funds no longer belong to the company. Under no circumstances should the funds from uncashed paychecks be returned to the general checking account.

Even if the employee never claims the money or cashes the payroll check, the employee deserves credit on his Social Security and Medicare accounts for wages earned. The wages also need to be reported as paid for unemployment purposes and unemployment tax needs to be paid. Even though the employee did not actually cash the check, the wages are considered to have been paid during the tax year in which the check was dated.

Below is the information for a few select states.

    * California requires employers to report any unclaimed or uncashed amount of at least $50 as of June 30, filed by November 1. Employees must be notified 180-365 days prior to making the filing.
    * Connecticut requires all wages unclaimed as of December 31, filed by March 31. Employees much be notified at least 180 days prior to filing.
    * New Jersey requires wages beginning at $50 as of June 30, filed by November 1. Employees must be notified 60-120 days prior to filing.
    * For New York, the threshold is $20 as of December 31, filed by March 10. There is no minimum period for notifying employees.
    * Pennsylvania requires wages beginning at $50, as of the prior year be filed by April 15th. Employees must be notified 60 days prior to filing and all funds.

For specific information on your state, contact your Perelson Weiner Partner.

Return to Newsletter Archive