What to do with employees' uncashed paychecks?

In general, employers are required to hand over the amount of an unclaimed paycheck to their state. This process, called "escheatment," requires abandoned or unclaimed personal property to be submitted to the state after a certain period.

Employers must turn over unclaimed wages to the state under unclaimed property or escheat laws. All 50 states have provisions regarding how to treat unclaimed property, and the requirements are very similar in one regard—how to determine if the property, in this case, the paycheck, is abandoned and when to report this information to the state. There are multiple elements to consider:

  • Does the property have value?
  • Is the owner of the paycheck (the employee) unable to be located?
  • Has the paycheck been unclaimed for the period set by state law, commonly known as the "abandonment period"?

Employers should ensure there are internal policies and procedures in place in the event of unclaimed wages, including:

  • Attempt to contact the employee or former employee by phone to discuss the uncashed paycheck(s). Document any attempts your company has made to have the person collect his or her wages.
  • Checking state regulations regarding unclaimed property to confirm the "abandonment period" and the timeframe for reporting the unclaimed wages to the state.
  • Sending written notice to the employee's last known address (or addresses) using certified mail.
  • Once the "abandonment period" passes, filing and reporting the unclaimed property with the appropriate state authorities.

Even if a check is abandoned, the employer has no right to void the check. The funds from an uncashed payroll check should never be returned to the company's payroll checking account. Employers must keep the funds available to pay the employee or to submit to the state. 

Employers can be fined or penalized if they don't return the check, even if the person can't be found. In these situations, employers are legally bound by state law to return any uncashed paychecks to the state where the person last worked.

States have increased enforcement of unclaimed property laws over the years. Most states have increased the size of the unclaimed property offices (including the number of auditors), the number of audits done, and the educational programs dealing with this topic. For more information, check with each state about its escheatment laws.