TN 18 (12-23)

RS 01401.040 Constructive Payment of Wages


To constitute constructive payment:

  • wages must be credited or set apart for the employee without any substantial limitation or restriction; and

  • wages must be available to the employee so that the actual payment is within the employee's own control; or

  • the employer must intend to pay or credit the wages and is able to pay them when due, but failure to do so is due to clerical error or a mistake in the mechanics of payment.

REFERENCE: Social Security Ruling 73-20


1. Credited

Credited means wages designated for the employee by the employer, either orally or in writing, in a definite amount or an amount which can be calculated.


  • payslip given to employee for services performed;

  • oral statement by employer to employee that they owe the employee a given amount for services performed;

  • receipt given to homeworker by the employer for work performed;

  • entry in time journal concerning employee's rate of pay.

2. Set Apart

Set apart refers to the physical segregation of funds or to their designation, e.g., placing money in a pay envelope.

3. Substantial Limitation or Restriction

Substantial limitation or restriction means any limitation or restriction on the time or manner of payment or any condition on which payment must be made.


  • Payment Needs Approval

    If an employer or officer of the business must approve the payment before funds can be paid, a substantial limitation exists until payment is approved.

  • Regular Payday

    If the employer has a regular payday, there is an implied limitation on making payment before that day. To overcome this limitation, there must be evidence that shows the employer customarily paid all employees, or all those of a certain class, including the employee, upon request.

  • Employer Specifies the Payee

    If wages were credited or set apart for an employee (including an employee's estate) and are available to that employee, the employer's insistence that the payment be made only to the person authorized to receive it is not a substantial limitation.


Funds must be available when constructive payment allegedly occurred. Wages are not constructively received if it is credited to the books but not paid because the employer was financially unable to pay the wages when due. If actual payment does not occur within a year of the time constructive payment is alleged, an explanation for the delay is necessary.

1. Corporate Officer's Salary

A corporate officer's salary is usually set by a board of directors. This constitutes constructive payment. It is not necessary that the time or method of payment be specified. Sufficient funds must be available for salary payments.

For years before 1978, wages were allocated equally to each quarter of the year. Quarters of coverage could not be credited to any period prior to the date of the salary approval.

REFERENCE: Social Security Ruling 73-42

For years after 1977, constructive payment is developed only where it is possible that an amount actually received in one year may have been constructively received in a prior year.

2. Payment Withheld in Interest of the Company

Where an officer waived part or all of their salary, it must be clearly shown that the withholding was not in the officer's interest.

For example, there is no constructive payment where an officer agrees to whatever salary the company can pay without interfering with its operations and the company, although not insolvent, has large expenses and immediate liabilities.

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RS 01401.040 - Constructive Payment of Wages - 12/27/2023
Batch run: 12/27/2023