Insufficient Funds Charge

HRGuyMS · July 2004

We are a small company whose corporate HQ is in one state but our bank is in a different state. We have employees spread across the country and mail paychecks out. Employees are told (via employee handbook) not to cash paycheck if they receive it prior to payday. One employee cashed his paycheck before payday. Funds were not yet transferred to our payroll account so the bank levied an insufficent funds charge against the company. My question is, can we legally recoup this charge from the employee who cashed his check early?

LarryC · July 2004

Whether you can deduct legally will come down to what your state says about it. Federal language is liberal and only prohibits deducting from paychecks if it will drive the pay below mininum wage. States, however, will usually have more to say about it. Your Mississippi coherts will be with you shortly, I'm sure.

That said, I would take the approach of going after the bank. They are the ones that cashed the check before its date. I'm assuming that your payroll checks are dated for the Friday paydate.

Pork · July 2004

[font size="1" color="#FF0000"]LAST EDITED ON 07-08-04 AT 03:54PM (CST)[/font][br][br]HRguyMS: I believe I have been told "no" on a similiar circumstance. The bank is at fault, they allowed the check to be cashed post date. I would also insure the employee is written up for violation of company policy, but only if you have specific "policy and protocal" with the ee's signature and a recent date prior to the date of the incident that says he knows or should have known of the rule and the specific punishment for such. Look for another bank! I was told we could not deduct from the employee income any money without the establishment of an accounts receivable agreement. Thus you would have to have the employees agreement that he/she owes the company the ISF fee.

Just the opposite happened to our direct deposit this morning. Payroll is normally posted on Thursday morning at 10:00AM. Some did not check to see if their account was posted and some got charged initially for ISF charges. I have called each of the employees who might get an ISF charge and assured them, we will make good the charges because it was our mistake. Our accounting manager made out the funds transfer docuement and made the effective date 7/9/04 instead of 7/8/04. My money will not be in my account until tomorrow. It is in our protocal that we will transfer payroll funds in sufficient time to make the DD system more favorable than either the mail or the personal check pick up system. Therefore, we owe for our error. Likewise, if the ee is in error, they must make it right.

"Dandy Pork" does make mistakes ever now and then.

Hope this helps. Don will probably come on in a minute and give you chapter and verse!

"Dandy Pork" if is still good even with a mistake!

dchr9203 · July 2004

Employees are going to cash their checks as soon as they get them; that's the nature of the "beast". I would suggest mailing paychecks on the day before or the day of the payday so most employees will receive on the actual payday or the day after (as long as postmark is by pay date I think you're covered). We have mandatory direct deposit which eliminates that problem for us (we're a small company too). I would reprimand the employee, review the handbook again, and warn they will be responsible for the cost if it happens again. I think you would be wasting your time going after the bank.

Good luck!

Bill ONeill · July 2004

Since you have the language in the handbook, my sense is that you can recoup this charge. But (there's always a but), my sense also tells me to inform the employee that the Company will pay the charge this 1X only. Future violations wil be charged to the employee.
Further thought, could the Company transfer the funds 1 day earlier ?

Don D · July 2004

[font size="1" color="#FF0000"]LAST EDITED ON 07-09-04 AT 04:56AM (CST)[/font][br][br](edit) Sorry, misread the question.

Rockie · July 2004

If it was a postdated check and the bank cashed it anyway, they are liable to reimburse you the NSF charge. If, on the other hand, it was issued and the employee was simply told (via the handbook policy) not to cash it until the following day...this is either a case of miscommunication (probably not) or pigheadedness (more likely). I'd also advise the employee that the company would pay the fee this time, but if he did this again, it would be considered a disciplinary issue.

marc · July 2004

Agree that the EE should be disciplined and that the bank should cover the mistake of cashing the check before it's date. As I understand it, banks do not even look at the date of a check when it is being processed. By the way, if the EE banks at the same place you have your payroll account, then the banks possible obligation is more straightforward than it will be if the EE banks somewhere else. The first bank may be more liable.

Just a warning, it you decide the EE must reimburse you, do not just deduct the amount from the paycheck without a specific, signed authorization from the EE allowing you to do so.

Don D · July 2004

I've been told by more than one bank official, over the years, that a check, once written, and as soon as presented, is negotiable, due and payable, regardless of date or even in the absence of a date.

But, I'm no banker, Heaven knows, just guilty of believing anything one ever told me.

hrbanker · July 2004

Most businesses (ours included) have pay checks that reflect a future date. We choose to make those checks available ON the pay date instead of before, but I'm always thankful that my husband's employer sends his check out in advance and we can cash it on payday.

Actually, a check is an instruction to your bank to give XXX person $$$ dollars on DDD date. The teller who cashed the check should have looked at the date, but tellers are human and make mistakes. Because of that, banks are used to refunding fees. I would go to the bank and explain the situation. They most likely will refund your money and be more careful of your paychecks in the future.

Peyton Irby MS · July 2004

assuming the check was not cashed before the date on the check, it would be difficult to argue any malfeasance on the employee's part. i'm sure the handbook has a disclaimer to the effect "this is not a contract of employment". the employee would point to this as having no contractual obligation to not cash the check.
Peyton Irby
Editor, Mississippi Employment Law Letter
Watkins Ludlam Winter & Stennis, P.A.
(601) 949-4810
[email]pirby@watkinsludlam.com[/email]

Don D · July 2004

Excellent point! I like that! Some of you would expect that the employer could enforce the handbook as a contract, but the employee would be expected not to be able to do so.

ScorpioHR · July 2004

I had this happen not to long ago-My bank actually called and asked if it was o.k. to cash the ee's check as it was the day before check date-Since most of our ee's have direct deposit, this does not come up often-I would go after the bank to remove the NSF charge from your account-The worst they can do is say no x:-/

Insufficient Funds Charge

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