Suppose the chip is a check, and the employee tries to cash it twice? Who would you rather be, Costanza or Timmy?
Staffing agency clients are increasingly pointing to a fraud committed by disloyal short-term employees. They cash a paycheck on their mobile app, then deposit the paper check a second time for duplicate payment. The check clears twice. Who must pay?
While this problem can arise in many scenarios, including with regular W-2 employees, it seems to be occurring more frequently with staffing agency employees, PEOs, temps, and other short-term workers. So let’s take a look.
I found a few good blog posts covering this subject (for those wanting more detail, try here or here), but here’s the bottom line:
The Check 21 Act, passed in 2004, addresses what happens when a bank allows its customers access to a mobile deposit app. When a customer electronically deposits a check, the bank creates an electronic image of that check, called a “substitute check.” This is what you sometimes see when you view your statement online. It’s negotiable, like a live check.
The original live check, however, still exists too. A fraudster who acts quickly enough can sometimes cash both. Under the Check 21 Act, the bank that creates the “substitute check” — the bank that allowed its customer access to the mobile check cashing app — is the bank that bears responsibility for any loss from the twice-cashed check.
This makes sense. Because that bank’s customer is the fraudster who double dipped, that bank is also in the best position to recoup the funds from the double-dipper.
Staffing agencies, payroll agencies, or PEOs who issue a twice-cashed check are sometimes asked to make good on the same payment twice. They shouldn’t be. If the double dipping occurred through an electronic “substitute check,”, they can point to the Check 21 Act, specifically 12 USC §5004, and argue that the double-dipper’s bank is properly accountable.
Note: The Check 21 Act only applies to electronic double dipping. If an employee claims to have lost an original live check and obtains a substitute, then cashes both checks, different rules apply.
© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.