Unclaimed salray implications under various act
This query is : Resolved
25 January 2012
Dear Sir/Madam,
i am associated with an Hospital, many times it happnes cheques have been issued in favour of employees but in fact employees do not encash them.
What are the implications under various
Acts like PF, ESI, Bonous, Limitation ACT
Thanks,
CA Anurag Hans
i am associated with an Hospital, many times it happnes cheques have been issued in favour of employees but in fact employees do not encash them.
What are the implications under various
Acts like PF, ESI, Bonous, Limitation ACT
Thanks,
CA Anurag Hans
26 January 2012
if those people are shown as Employee (with proper offer letter, employee record etc) then these labour laws (along with TDS provision )will be attrated from employers point of view.
Since those people are not encashing their salary it may be treated as surrender of salary if empolyer has anything in this respect.The other view may be once the income is credited it becomes income of employee and they are responsible for its disposal.EMployees will be subject to Tax.
I belive second view is more relevant since employer has credited salary But employees are not encashing.
Kuch Jugaad wali situation lagti hai as superficial entry.
Since those people are not encashing their salary it may be treated as surrender of salary if empolyer has anything in this respect.The other view may be once the income is credited it becomes income of employee and they are responsible for its disposal.EMployees will be subject to Tax.
I belive second view is more relevant since employer has credited salary But employees are not encashing.
Kuch Jugaad wali situation lagti hai as superficial entry.
26 January 2012
Vikas sir, thanks for your opinion but let me tel you some more about this issue
1. Employees are on proper payroll
2. TDS whereever applicable is properly deducted
3. Salaries are subject to ESIC & PF Deductions
4. Labour laws are applicable to orgnisation
5. cheques issued have not been encashed for more than 6 months.
so, i want to know what are the various provisions which will get attracted like. Delhi state labour laws, limitation ACT etc.
Thanks
1. Employees are on proper payroll
2. TDS whereever applicable is properly deducted
3. Salaries are subject to ESIC & PF Deductions
4. Labour laws are applicable to orgnisation
5. cheques issued have not been encashed for more than 6 months.
so, i want to know what are the various provisions which will get attracted like. Delhi state labour laws, limitation ACT etc.
Thanks
02 August 2025
This is a nuanced issue involving multiple laws and compliances. When salary cheques issued to employees remain **unclaimed or uncashed for long periods (6 months or more)**, various legal implications arise under different Acts. Here’s a detailed breakdown:
---
### 1. **Labour Laws & Payroll Compliance**
* **Payment of Wages Act / Shops & Establishment Act (Delhi State Labour Laws)**
Salary once due and payable to employees must be paid within prescribed timelines. Issuing cheques is generally considered payment, but if employees do not encash the cheques, salary remains unpaid in practical terms.
* Employers should maintain records of issued cheques as proof of payment attempt.
* If salary remains unpaid/unclaimed, it may be treated as pending wages liable for interest or penalty under labour laws.
* Delhi Shops & Establishments Act also governs timely payment and maintenance of wage records.
* **Limitation Act, 1963**
* Employees generally have a **3-year limitation period** to claim unpaid wages or salary.
* If salary remains unpaid (uncashed), employees may file a claim within this limitation period.
---
### 2. **Provident Fund (PF) Act**
* PF contributions are calculated on **salary payable or paid**.
* Issued cheques reflect salary payable; hence PF obligations arise irrespective of cheque encashment.
* Non-encashment does not relieve employer from depositing PF contributions.
---
### 3. **Employee State Insurance (ESI) Act**
* ESI contributions are based on **wages paid or payable**.
* Employer must pay ESI on salary credited (issued via cheque), even if uncashed.
---
### 4. **Bonus Act**
* Bonus is computed based on **salary payable or paid**.
* Unclaimed salary remains part of salary for bonus calculation.
---
### 5. **Income Tax Act & TDS**
* TDS on salary is deducted on **salary payable/credited**, irrespective of cheque encashment.
* Employee is liable to pay tax on salary credited to them even if they have not encashed the cheque.
---
### 6. **Negotiable Instruments Act**
* Cheques become **stale after 6 months** from issuance date.
* Employer may need to reissue fresh cheques if original cheque is stale and not encashed.
* Employer should keep records and communicate with employees to avoid payment disputes.
---
### Practical Recommendations for Employer
* Maintain detailed records of issued cheques and employee communications.
* Follow up actively with employees for cheque encashment.
* Consider issuing **salary payment acknowledgment or waiver letters** if employees voluntarily surrender their right to unclaimed salary (rare and needs documentation).
* Treat unclaimed salary as a liability until paid or formally waived.
* For accounting and audit purposes, maintain a separate ledger for unclaimed salaries.
* Check if Delhi state laws have specific provisions on unclaimed wages; deposit unclaimed salary in designated funds if applicable.
---
### Summary Table
| Act / Provision | Implication for Unclaimed Salary |
| ------------------------------ | ---------------------------------------------------------------------- |
| Payment of Wages / Labour Laws | Salary remains payable; employer liable until actual payment or waiver |
| PF & ESI | Contributions must be paid based on salary credited |
| Bonus Act | Bonus calculated on salary payable |
| Income Tax (TDS) | TDS deducted on salary credited, employee liable for tax |
| Limitation Act | Employees can claim unpaid salary within 3 years |
| Negotiable Instruments Act | Cheques stale after 6 months, reissue needed |
---
If you want, I can help draft a detailed **policy note for your hospital** on handling unclaimed salaries, covering compliance, accounting, and employee communication best practices. Would that be helpful?
---
### 1. **Labour Laws & Payroll Compliance**
* **Payment of Wages Act / Shops & Establishment Act (Delhi State Labour Laws)**
Salary once due and payable to employees must be paid within prescribed timelines. Issuing cheques is generally considered payment, but if employees do not encash the cheques, salary remains unpaid in practical terms.
* Employers should maintain records of issued cheques as proof of payment attempt.
* If salary remains unpaid/unclaimed, it may be treated as pending wages liable for interest or penalty under labour laws.
* Delhi Shops & Establishments Act also governs timely payment and maintenance of wage records.
* **Limitation Act, 1963**
* Employees generally have a **3-year limitation period** to claim unpaid wages or salary.
* If salary remains unpaid (uncashed), employees may file a claim within this limitation period.
---
### 2. **Provident Fund (PF) Act**
* PF contributions are calculated on **salary payable or paid**.
* Issued cheques reflect salary payable; hence PF obligations arise irrespective of cheque encashment.
* Non-encashment does not relieve employer from depositing PF contributions.
---
### 3. **Employee State Insurance (ESI) Act**
* ESI contributions are based on **wages paid or payable**.
* Employer must pay ESI on salary credited (issued via cheque), even if uncashed.
---
### 4. **Bonus Act**
* Bonus is computed based on **salary payable or paid**.
* Unclaimed salary remains part of salary for bonus calculation.
---
### 5. **Income Tax Act & TDS**
* TDS on salary is deducted on **salary payable/credited**, irrespective of cheque encashment.
* Employee is liable to pay tax on salary credited to them even if they have not encashed the cheque.
---
### 6. **Negotiable Instruments Act**
* Cheques become **stale after 6 months** from issuance date.
* Employer may need to reissue fresh cheques if original cheque is stale and not encashed.
* Employer should keep records and communicate with employees to avoid payment disputes.
---
### Practical Recommendations for Employer
* Maintain detailed records of issued cheques and employee communications.
* Follow up actively with employees for cheque encashment.
* Consider issuing **salary payment acknowledgment or waiver letters** if employees voluntarily surrender their right to unclaimed salary (rare and needs documentation).
* Treat unclaimed salary as a liability until paid or formally waived.
* For accounting and audit purposes, maintain a separate ledger for unclaimed salaries.
* Check if Delhi state laws have specific provisions on unclaimed wages; deposit unclaimed salary in designated funds if applicable.
---
### Summary Table
| Act / Provision | Implication for Unclaimed Salary |
| ------------------------------ | ---------------------------------------------------------------------- |
| Payment of Wages / Labour Laws | Salary remains payable; employer liable until actual payment or waiver |
| PF & ESI | Contributions must be paid based on salary credited |
| Bonus Act | Bonus calculated on salary payable |
| Income Tax (TDS) | TDS deducted on salary credited, employee liable for tax |
| Limitation Act | Employees can claim unpaid salary within 3 years |
| Negotiable Instruments Act | Cheques stale after 6 months, reissue needed |
---
If you want, I can help draft a detailed **policy note for your hospital** on handling unclaimed salaries, covering compliance, accounting, and employee communication best practices. Would that be helpful?
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