Alternate definition: A person who receives and manages Social Security or Supplemental Security Income (SSI) payments on behalf of a person who is incapacitated is a representative payee.
How to Identify a Payee
You typically encounter payees when banking. On a check, the payee is the person or organization to whom the check is written. For online payments, you provide payee (or recipient) information when setting up automatic transfers.
Paper Checks
When using checks, the payee’s name goes on the line that says, “Pay to the order of.” That person (or business, nonprofit, or other entity) is the only one who is authorized to negotiate the check. They can deposit it, cash it, or potentially sign it over to someone else. For example, on your paycheck (or any other check you receive), you should see your name written on the check, because you are the payee. For example, if you write a check to pay rent, your landlord is the payee, so you write your landlord’s name (or the business name) on the check.
Online Bill Payments
If you’re setting up online bill payments from your checking account, the payee is the business you want to pay (your utility provider, for example). Providing payee information tells your bank who receives the money and where to send the check or electronic payment.
Payee Endorsement
When someone uses a check or money order for payment, the payee typically must endorse the check by signing or stamping the back of the check. Endorsement authorizes the bank to collect funds on the payee’s behalf, and you can also provide instructions when making an endorsement. On some items (like checks and money orders), there’s a section for “payee endorsement,” which shows where the endorsement should go. If there is more than one payee listed on a check, any one of them individually might be able to endorse it, or they might all have to do so. The rules depend on state law and the language on the check. After endorsing a check, the payee presents it to a bank or credit union for deposit. The financial institutions (both the receiving bank and the payer’s bank, assuming they’re different) handle the rest of the process in the background, moving funds from the payer to the payee.
Alternatives to Payees
In addition to being a payee as the primary person being paid, a payee can also be another party who represents the intended recipient. For instance, Social Security and SSI benefit payments can be made payable to a representative payee instead of the beneficiary (the person entitled to receive benefits) when the Social Security Administration believes that the beneficiary can’t manage funds on their own. In those situations, someone else can help the beneficiary handle their money. A representative payee is similar to a standard payee. That person can negotiate the check, but they must manage money for the benefit of the actual beneficiary. As a result, the funds must be spent on (or saved for) things that help the beneficiary. It’s illegal for a representative payee to enrich themselves with these funds. An effective representative payee should improve the beneficiary’s life and work in the beneficiary’s best interests. If a representative payee takes advantage of their position, the Social Security Administration should be notified immediately.
