What to Do When Your Paycheck Bounces

Last year the unthinkable happened to thousands of employees in small businesses across the country, including some in western Massachusetts. Early in September they woke up to find that not only had their most recent direct deposits, some of which had already been used to pay rent and bills, been withdrawn from their bank accounts, but some employees lost multiple paychecks, resulting in severely overdrawn accounts.

It happened because a New York-based payroll service was shut down when its CEO was charged with stealing $70 million, including clients' payrolls and tax payments. Financial institutions froze the CEO’s accounts and the company that distributed processed payrolls found themselves sending out money that didn’t exist, which led to the reversed payroll checks. 

By the end of November, most of the victims had gotten their wages, but for many, having a paycheck bounce turned into a financial nightmare.

When things like this happen, you can feel completely paralyzed and frustrated, especially if your employer is at fault and is unresponsive to your inquiries. There are things you can do, however, to ensure you get your payroll check as quickly as possible.

Remain calm

Your first reaction in this situation is likely panic, which is understandable, but a prolonged bout of anxiety isn’t going to be helpful. A bounced check is often the result of human error, not fraud or the imminent failure of a business.

As a result, it’s important to follow the steps, not just jump to conclusions. Be sure to write down what you do, what time you took action, who you spoke with, and what results you received. This is helpful both in the event you need a lawyer and for getting your state’s department of labor involved. 

Call your employer

Once again, it could be a mistake, and if it is, they should be able to help figure out what went wrong and fix it, though it might take a few days. Give them a week to make things right. If they can’t or won’t, it's time to escalate the issue. 

Call your financial institution

Perhaps your check was deposited to a wrong account, or maybe you did something that prevented it from clearing, like writing down the wrong amount, forgetting to endorse the check, or obscuring the routing number in some way. You can also stop any upcoming automatic payments while you figure out what happened. 

Tap into Emergency funds

Emergency savings are for rainy days and, yes, consider a bounced payroll check as a "rainy day." Times like these will make you appreciate having some cash savings. At the very least, be familiar with your financial institution's overdraft policy and try to keep enough money in your checking account so that losing a big chunk won’t result in overdrafts, which will only make this situation that much worse and more stressful.

Ideally you should have enough in emergency savings to pay living expenses and bills for at least six months, but if you've got less than that, it's better than having nothing at all. When you're back on your feet, start building that fund up!

Call your coworkers

Are they having problems cashing their checks? If only your check is bouncing, this increases the likelihood that it’s a mistake that can be corrected soon and you won’t need to lawyer up or call your state’s department of labor. 

Talk to a lawyer

Legal assistance will cost you money, but if you've exhausted all other avenues for getting paid what you're owed, it may be the best route for you, especially if your employer is not responsive. There are many legal aid organizations out there, some of which provide affordable or even free (pro bono) service. Another resource is the Legal Services Corporation, a Johnson-era Great Society program that helps low-income Americans afford legal representation.

In Massachusetts, the Attorney General’s Office offers free wage theft legal clinics where people can obtain advice.  Keep in mind that in Massachusetts writing a bad check is a crime if the payer knew they didn’t have the funds and was intending to deceive either a bank or a recipient. A civil suit can be filed to obtain the amount of the check and up to $500 in damages if a written demand for the amount goes unanswered for 30 days.  

Talk to your creditors

Now it's time to write to your creditors, explain the situation to them, and ask for some leeway while you wait for your paycheck. This may prevent your creditors from charging late fees and penalties. Be polite, point out that you’ve never missed a payment before, and that circumstances beyond your control are making payments difficult this one time. Your creditors may be willing to extend your due date or give you some other relief that can help prevent a bad situation from getting worse.

File a complaint

In Massachusetts wage theft and other criminal issues between employers and employees are handled by the Attorney General’s Fair Labor Division. Complaints can be filed through their website.

In New Hampshire, you can file a wage claim through the Department of Labor's website.

In Connecticut, you can file a wage claim online through the state's Department of Labor website.

Instructions for filing a wage claim in the Commonwealth of Virginia are can be found here.

If you live in another state not listed here, search "unpaid wage claim" along with the name of your state for help.

Start Job Hunting

When you have to file a claim or hire a lawyer to get paid, these are fairly good indicators that your talents could be better served with an employer who actually has money to pay you for them. Even if you clear everything up and get your money, you may have to go through this painful experience again with your employer and jeopardize your own finances, not to mention that the work atmosphere may be uncomfortable from here on out. (If you use a mobile app to deposit your payroll checks, don’t destroy the checks until you’re sure they’ve been processed and cleared.)

So your best move may be to literally move. Quickly. Get your resume in circulation and land a new job where your work ethic and abilities will be appreciated with a paycheck that shows up when it's supposed to.

As you work to put together a budget to meet your changing needs, our Money Management Planner can help. This 12-page workbook will guide you through the process of creating a spending plan. It includes tips and worksheets to help you. Download your free copy to get started. 

Download your Money Management Planner

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Matthew M. Robare

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