Did you know that unclaimed wages must be turned over to the state? There are unclaimed property laws in each state requiring employers to report on unclaimed wages and eventually turn them over to the state after a period of dormancy if they remain unclaimed.
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Employers should first understand what constitutes unclaimed property in your state (or the state that has jurisdiction for the property in question), and have a process to verify that it is truly unclaimed and that efforts have been made to contact the property owner. For example, what is your process for contacting a former employee who has not cashed a check? How soon do you follow up?
"The sooner you can find an uncashed check, the likelihood of being able to find that person – especially if you're in the kind of industry that has a transient workforce or seasonal workforce – the sooner you can be aware of what's going on and try to reach out to those people, the better luck you're going to have in getting it back to that owner. Ultimately, I think we all want to do that rather than give it over to the state." Marlys A. Bergstrom explained in a recent BLR webinar.
One of the first steps in this process is the due diligence letter. All state laws require you to send a due diligence letter to try to contact the owner before starting the process of reporting an unclaimed property.
Unclaimed Wages: The Due Diligence Requirement
Since due diligence letters are required by all states, it's important for employers to understand exactly what they need to do to be in compliance. Employers should know what triggers the due diligence letter requirement for unclaimed wages.
For example, when do you have an obligation to send this? The answer is based on how much the item is worth. If the item’s worth is below a minimum threshold noted in the state statute, then you don't have to send a due diligence letter for an amount less than that.
"It doesn't mean I'm not going to have to pay it to the state, but I don't have to notify the payee." Bergstrom explained.
However, many employers go ahead and send letters to everyone with unclaimed wages, regardless of the amount. "A lot of companies I've worked with say: 'no, we're going to send a letter to everybody because we'd rather try to get it back in the hands of our current employees or former employees than we would the state, so we're going to send a letter regardless.' But, what you're required to do statutorily, is send a letter if it's over a certain threshold amount." Bergstrom told us.
Another issue is the timing of the due diligence letter as well as the timing of remittance to the state. The dormancy period before it is considered an unclaimed wage is typically one year without any activity. After it has crossed one year of dormancy it is reportable to the state, and then it also must be remitted to the state by the state's deadline (and the deadlines vary by state). You first need to know when it must be remitted to the state because that timing is what will be relevant for the timing of sending the due diligence letter.
Generally, the due diligence letter should be sent no more than 120 days and no less than 60 days before remittance. However, you could send a preliminary notification further in advance if you'd like – there's nothing stopping you from communicating separately earlier. But to meet the statutory requirement, you have to send the official due diligence letter in this time frame.
For more information on due diligence letters for unclaimed wages, order the webinar recording of "Unclaimed Wages: Best Practices for Reporting and Remitting Abandoned Payments." To register for a future webinar, visit http://store.blr.com/events/webinars.
Attorney Marlys A. Bergstrom is a member of Sutherland Asbill & Brennan LLP's financial services group. She focuses her practice on insurance, unclaimed property compliance, planning and related restructuring, and audit defense.