Recently, a client informed me that an employee who had been terminated several months prior had failed to cash his final paycheck, resulting in it becoming expired.
This client was well aware of its obligations under federal and state law to pay its employees their full wages upon completion of their employment. Thus, the client asked whether, by issuing the check and providing a reasonable time frame for it to be cashed or deposited, it had satisfied its wage payment obligations under applicable law.
As an initial matter, the answer to this question depends on state law, as this issue is not specifically covered by the federal Fair Labor Standards Act. While different state laws contain various nuances, the general law in most states is that the employee is ultimately responsible for converting his paycheck into readily usable funds. If, however, an employee fails to cash or deposit his paycheck after a certain amount of time, the state’s statute of limitation on unclaimed funds may expire, which would result in the employer possessing “unclaimed property.”
While an employer may initially be excited over this “good fortune,” possessing unclaimed property in the form of unclaimed wages is not as glamorous as it sounds. Indeed, despite the former employee’s delinquency in failing to cash or deposit the paycheck, the employer cannot simply pocket the unclaimed funds.
Rather, an employer who possesses such unclaimed property typically would be subject to both a number of reporting requirements (including sending written notice to the supposed owner of the unclaimed property) and the obligation to turn over such property to the state. Significant penalties would apply to employers who fail to comply with these requirements.
Thus, if, as an employer, you find yourself in the possession of a former employee’s unclaimed paycheck, it would be prudent to make a reasonable effort to track down and/or locate that employee and reissue the check to make him whole. In so doing, you would avoid any unnecessary involvement with the state treasury department involving the unclaimed funds.
Moreover, by ensuring payment of a former employee (despite his failure to cash or deposit the prior check that was already issued), you would reduce the risk of legal exposure for failure to pay wages under applicable law.