It may also damage your relationship with the vendor or person you gave the check to. Document each attempt that you make to tell the employee or former employee about their uncashed paycheck. Make sure to keep accurate payroll records of each https://kelleysbookkeeping.com/the-direct-write-off-method/ attempt. If you operate a business, be sure to check with state and industry regulators to verify the requirements that apply to your check. You may have to include certain language or follow other rules related to unclaimed property.

The first step in doing so is to contact the payee, to see if the check was lost. If so, cancel the original check, reverse the payment transaction in the accounting records, and send them a replacement check. Dealing with outstanding checks can also be time consuming.

What is an Outstanding Check?

Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com. If you want a basic checking account with no monthly maintenance fee, or an interest-earning checking account, we’ve got the options that are right for you. If the employee still works for you, getting in touch with them should be easy because you have their current contact information.

How To Handle Outstanding Checks In Payroll

You might also fail to report unclaimed paychecks to your state. If you don’t report the unclaimed property to your state, you could face penalties. Make sure you establish procedures for dealing with unclaimed paychecks before these issues come up.

How to write off outstanding checks

Payroll checks might be different from checks to vendors. States require holders of unclaimed property to attempt to contact the owner before reporting the property. If the payee says the check was never received, the company should issue a replacement check for $124 and send it to the payee. If a paycheck goes unclaimed for a certain period of time, you need to file and report it to your state. Generally, if a paycheck is unclaimed for one to five years, you will need to hand over the amount of the check to your state. If the paycheck is expired, the employee might still be able to cash it, depending on their bank’s rules.

How do you account for outstanding checks?

In the bank reconciliation process, the total amount of outstanding checks is subtracted from the ending balance on the bank statement when computing the adjusted balance per bank. (No adjustment is needed to the company's general ledger accounts, since the outstanding checks were recorded when they were issued.)

Remember those outstanding payroll checks the accounting department keeps asking you about? How about the unsuccessful direct deposit campaigns targeting the same employees repeatedly? Ever wonder what ended up happening with the outstanding checks that were never cashed? A common form of unclaimed property that is a cause for concern for employers is uncashed checks, otherwise known as unclaimed wages.

When does your state require you to report unclaimed paychecks?

We are the industry leader in Oil Spill Cleanup Products and have dealt with numerous Oil Spill disasters. Knowing up close what a disaster looks like we choose to avoid them in our offices. HR&P guides us through the land mines of HR, Payroll and Benefit compliance so my team can focus solely on helping our clients with their problems, and we avoid our own. Unclaimed property is a sensitive issue that requires careful handling. If there is any doubt that you have met the burden of due diligence, consult with a professional expert.

Checks that are outstanding for a long period of time are known as stale checks. In the U.S., outstanding checks are considered to be unclaimed property and the amounts must be turned over to the company’s respective state after several years. In Montana payroll checks that are never cashed by an employee fall under the unclaimed property rules. You as the employer are the holder of these stale checks. The holder has the responsibility to determine if the stale checks meet the state’s requirements for filing an unclaimed property report and remitting them to the state. When there are old outstanding checks on a bank reconciliation, they should be eliminated.

Forgetting about your uncashed liability can lead you to spend more money than you actually have. One way to combat potential bank overdrafts is by opening a separate payroll account. By separating payroll funds from general business funds, you can make sure you won’t touch extra money in your payroll account that is meant for paychecks. We will assume that an outstanding check has appeared on the outstanding check list that is part of the company’s bank reconciliation for at least four months. In other words, the company issued the check more than four months earlier and the check has not yet cleared the company’s bank account. Balancing your checkbook is akin to what professional accountants do during reconciliation.

How do you deal with outstanding checks?

  1. Contact the payee. Sometimes a payee might have simply forgotten to deposit the check.
  2. Keep track of outstanding checks.
  3. Reissue new payment.
  4. Stop payment.
  5. Switch to online bill pay.

That live pay check that you issued to one of your employees could be the same uncashed check that is aging on your company’s bank statement. A couple of entries and those stale checks can be cleared off the books. A journal entry to debit (increase) cash and credit the business’s wages payable account is step one. The payment submitted to the state will then offset the wages payable account.

Do paychecks expire?

Find and retain available data that identifies the property owner. Try to contact the payee at regular How To Handle Outstanding Checks In Payroll intervals, such as every six months. Business owners love Patriot’s award-winning payroll software.

How To Handle Outstanding Checks In Payroll

Outstanding checks can also create discrepancies between your accounting books and bank account. Your bank account will show a higher balance than your books. To fix this, you will need to reconcile your bank account with your accounting books. After bank statement reconciliation, adjust your bank statement balance. The expiration period for paychecks varies from state to state. If an employee tries to cash an expired paycheck, their bank can choose whether to cash it or not.