How should an employer handle unclaimed wages?
An employer may find that an employee fails to cash a paycheck. Most often, this occurs with the final pay check. These “unclaimed wages” may not be treated as “found money.” When an employee fails to pick up a final check or fails to cash a check these unclaimed wages may become a form of “abandoned property.”
When is property considered abandoned?
Each state has its own definition of what it specifies as the abandonment period. That is, the time that each state requires that property must lay dormant before it is considered abandoned varies from state to state.
Once the unclaimed wages are considered abandoned, the employer must pay these unclaimed wages over to the state where the person last worked. The state steps into the shoes of the “lost owner” and takes ownership of the property until the rightful owner is found.
The state laws governing abandoned property are known as esheat laws because the property “escheats,” or reverts to the state and is not kept by the employer. Escheat laws are intended to give the employee an opportunity to claim the funds without having to track them down through corporate mergers or relocations,. Instead, the employee can go to the state to locate and claim the funds.
How long should an employer retain the funds?
Before an employer does anything with the unclaimed wages, the employer should check state laws to see how long the wages must be held, the employer’s obligations for locating the owner, when the employer must report the unclaimed wages to the state, and where the report must be sent to. In some states the wages are sent to the treasurer’s office. In other states the wages are sent to the attorney general’s office. States generally require that the employer holds the funds for at least one year.
Trying to locate the employee
Once an employer identifies unclaimed wages, the employer cannot simply transfer these funds to the state. The employer is obligated to make efforts to locate the employee. Employers must demonstrate that they have taken steps such as sending a tracked mailing (e.g., certified letter or UPS) to the employee’s last known mailing address or other method of contacting the employee using their last known contact information.
Most states require the employer to wait a minimum of six months after making these attempted notifications. Once the employer has complied with the statutory requirements – and can demonstrate that in the filing with the state – the funds may be returned to the state.
Reporting and remitting funds to the state
States have different reporting deadlines in the year. Some states use a date early in the following year after the dormancy requirement is met. Other states have a more accelerated deadline which would require advanced planning to ensure the deadline is not missed.
State unclaimed property laws also have detailed requirements, that vary by state, for remitting the funds to the state and for required supporting documentation.
Summing it all up: What is required of the employer?
Each state has its own unclaimed property rules and requirements.
Step 1: Document every contact you made with the employee
Most states require employers to show due diligence that they made all efforts possible to reach out to employees and give them the funds that they are owed in an attempt to keep unclaimed wages from becoming abandoned property
Step 2: File an annual report with your state
States typically require the employer to file an annual report including the employee’s name, last known address, amount and payment date of the unclaimed check, and the date of last contact with the employee
Step 3: Send the unclaimed wages with the report
With the report, the wages must be sent to the state. The state holds the money indefinitely (until claimed). The employer’s responsibility for paying the wages ends once the employer submits the wages and the report to the state.
Where can you find more information?
Recall that these laws vary by state and each state has its own requirements.
- National Association of Unclaimed Property Administrators (NAUPA) webpage has links to state websites: https://unclaimed.org/
- Search by state name and word “escheat”