Employee Paycheck Returned to Employer

Do not adjust your payroll expenses!!!! You need to report it to your State as unclaimed property and they will instruct you on what to do with the check. 

Thank you for your response.    My payroll company has already refunded my banking account, minus the processing fee my payroll company took.  I have two questions regarding this:

How would I go about sending the check to my state?  I am based in Colorado.  I was never in possession of the actual paycheck. 

How should this paycheck be categorized in QuickBooks going forward?

Thank you.

Code the refund to a Current Liabilities account, i.e. Wages Payable. You do not want it showing on your Profit & Loss and especially do not want it touching your payroll expenses.

You only need to report the unclaimed property to the state. You wont want to send any funds to them unless or until they ask. Here is the Colorado website to submit the report: https://colorado.findyourunclaimedproperty.com/

I would check the website for your state guidelines before submitting the report. You must "exhaust all options to locate the property’s rightful owner before determining to which state they should report the assets." Here is a helpful article: https://www.journalofaccountancy.com/issues/2004/feb/unclaimedproperty.html

Keep it in Current Liabilities until Colorado instructs you otherwise, unless you are able to locate the prior employee. When that time comes, writing a check or creating a Journal Entry will clear the balance. 

If I'm able to contact my former employee, would I send them a business check for their net amount along with their original pay stub?  If I would eventually need to send the funds to the state, would the process of sending the funds be the same as well? 

Thank you again.

If you are able to contact your former employee you would need to write a check for the gross amount and include the pay stub. Code the check to clear out the Wages Payable account. I would assume the same with Colorado.