abandoned wages
TRANSCRIPT
©2016 The Payroll Advisor1
Handling Unclaimed or Abandoned Wages
Presented on Wednesday, June 15, 2016
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Housekeeping
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Credit QuestionsToday’s
topicSpeaker
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Our Focus For Today
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Definitions of and for Abandoned Wages
Uniformed Unclaimed Property Act
State Requirements When considered abandoned
When to report
How to report
Due diligence
Setting up the procedures
About the Speaker
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Vicki M. Lambert, CPP, is President and Academic
Director of The Payroll Advisor™, a firm specializing
in payroll education and training. The company’s
website www.thepayrolladvisor.com offers a
subscription payroll news service which keeps
payroll professionals up-to-date on the latest rules
and regulations.
As an adjunct faculty member at Brandman
University, Ms. Lambert is the creator of and
instructor for the Practical Payroll Online payroll
training program, which is approved by the APA for
recertification credits.
Names It Goes By
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Abandoned wages
Unclaimed property
Escheat
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Pronunciation and Definition
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es·cheat [ s-ch t ][ĭs - chēt
Reversion of land held under feudal tenure to the manor in the absence of legal heirs or claimants.
Law a. Reversion of property to the state in the absence of legal heirs or claimants. b. Property that has reverted to the state when no legal heirs or claimants exist.
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More Definitions
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Unclaimed Property: Consists of various types of personal property including intangible. Items such as checking and savings accounts, uncashedchecks, insurance refunds and wages are examples of unclaimed property
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More Definitions
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Holder
Holders include financial institutions, business corporations and retailers
The one who is “holding” the money has the liability to report the wages
As the employer you are the “holder” for the wages
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How Long To Hold the Money
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Governed by state law
Period of inactivity
Known as the “dormancy period”
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Why Are the States Involved?
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Each state is involved in unclaimed property as a service to the citizens of its state
There is one place to look for the property
State attempts to find the owner
Money held forever until owner found
Citizens benefit since earned interest is used to fund public programs
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Uniform Unclaimed Property Act
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Each state and DC have enacted a version of the law
Considered a consumer protection law
Revenue measure as well
Various revisions-last one in 1995
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Property Covered by the Act
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Bank deposits
Securities
Dividends
Traveler’s checks
Other or miscellaneous debts (wages, credit balances etc.)
This is where payroll comes in
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Derivative Rights
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Rights of the state to collect unclaimed property are derived from the owner
“The state stands in the shoes of the owner”
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The States and the Courts
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1965 U.S Supreme Court ruling ended question of who has the right
Texas v New Jersey
State of the owner’s last know address of record gets the money
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Private Efforts v State Efforts
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Some corporations tried private bylaws to avoid turning over the property
Example: company includes statement in writing that indicates forfeiture if the owner fails to negotiate the instrument within a certain time frame.
Courts have said NO to that one!
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Why So Important
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Many property holders are unaware of their obligations
Not uncommon for holders take back into income uncashed payroll checks
States see unclaimed property as a potential revenue source
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State Efforts
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Usually an understaffed agency in the past
Controller or Treasurer
Turning to outside collection
Bounty hunters, third party, contingent fee examiners
Using sampling techniques if records are not available-inaccurate but profitable!
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The Laws
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Each state has its own laws
These include:
When considered abandoned
When to report/remit
How to report/remit
Due Diligence
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Finding Those Laws
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Google “abandoned property”
or Link to states’ websites http://www.unclaimed.org/reporting/ part of NAUPA (National Assoc. of Unclaimed Property Administrators)
Look for “holder reporting”
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Using Google (any search engine)
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Google “unclaimed property”—example for Nebraska
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And We Get…
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Then click on “Unclaimed Property; Drop Down Menu; Report Unclaimed Property”
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And We Get…
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And access the information you need…
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NAUPA Website
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Link to states’ websites http://naupa.org/
Click on state you want
Begin the same process as with Google search except website comes right up
Example--Nebraska
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And We Get…
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Then click on “Unclaimed Property Drop Down Menu Report Property”
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Holder Reporting Four-Step Process
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Step 1
• Identify the checks that should be reported
Step 2• Attempt to locate the owner
Step 3• Prepare your report
Step 4
• Submit your report and remit funds due
When Considered Abandoned
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Wages are generally one year after becoming payable
Example: California, Florida, Louisiana and most other states with the exceptions of:
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Two Years Three Years Five Years
North Dakota Kentucky Delaware
Pennsylvania Maryland Mississippi
Massachusetts
Missouri
Oregon
Agent Issued Stale Dated Payroll Checks
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If an employer uses a payroll processing agent to issue checks that clear on the agent’s account, the agent will periodically notify the company of stale dated payroll checks that have not cleared their account. They will then redeposit these funds to the company’s checking account and the checks will no longer be negotiable. The company then has the responsibility for controlling and reporting the re-deposited payroll checks as unclaimed.
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Agent Issued Stale Dated Payroll Checks
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If the payroll processing agent does not redeposit stale dated payroll checks back to the company’s account you need to contact the agent to determine if they review outstanding payroll checks for unclaimed funds reporting. If the agent reviews outstanding payroll checks for unclaimed funds reporting purposes then no additional work is required. If they do not then you should obtain an outstanding checklist from the agent, or the issuing bank, and request that funds for dormant accounts be returned so that they can be reviewed to identify reportable unclaimed accounts.
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When to Report/Remit
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Each state again has their own rule:
Typical: Before Nov 1 of each year for any wages unclaimed as of June 30 or July 1 that year although some are Oct 31
CA only state that requires 2 reports—one by Nov 1 and 1 in June
Other states require…
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States that Differ From Nov 1
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State Due Date End Date
Connecticut Within 90 Days (March 31st) Close of Calendar Year
Delaware March 1 Preceding December 31
Florida Prior to May 1 Preceding December 31
New York March 10 Preceding December 31
Pennsylvania April 15 Preceding Calendar Year
Tennessee May 1 Preceding December 31
Vermont May 1 Preceding December 31
How to Report
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State usually has a report you can complete
States allow electronic filing or internet
Some require electronic filing only of reports
Some only diskette or CD
Some want paper with electronic filing
Some still allow paper for small reporting of less than a certain amount of checks
UPExchange is one of the free common software
Another is HRS Pro Software
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How to Report
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Some states may have reciprocal agreement filing such as Massachusetts and Wisconsin—usually not to California
Negative reports may be required—example OH—Yes; MA—No
Aggregate reporting: may be allowed for small dollar amounts such as under $100 for MA—be careful some states don’t allow—CT
Due Diligence Reports may have to be filed with the state
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How to Remit
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Remit can be electronic as well
Some states require EFT if over a certain amount
Example: CA required if over $20K
Example: MA required if over $10K
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What is Due Diligence?
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Required to notify owners that their property is in danger of being escheated to the state
This is known as due diligence
May not be required by state
May have threshold before required
Example WI’s threshold is $50
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Examples: Due Diligence
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CA: The holder shall send by mail, to the address of record, a notice not less than six nor more than 12 months before the time the account becomes reportable to the controller
NV: This process, known as “Due Diligence”, must be completed not less than 60 nor more than 120 days before the report is filed for each owner whose balance is more than $50.
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Due Diligence-Example Iowa
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What Does This Notice Need?
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The notice must specify when the property will escheat to the state and include the need for filing a claim to recover the property once the property escheats to the state.
The holder must also provide the owner with an opportunity to indicate an interest in the property.
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What Does This Notice Need?
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This is done by providing a form the owner can return to the holder to provide a current address or to express an interest
State may have form for you to use
Free software may do the due diligence letter for you.
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What if the Owner Responds?
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If the owner provides an address or otherwise indicates an interest in the property, the holder will consider this as a contact or activity and will not escheat the property. The escheat period will start to run again from that date of contact or any subsequent date of contact.
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To Former Employer
What Happens If a Company Doesn’t Comply?
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Most every state does have penalties
These economic times, states are turning to revenue where they can get it
Can range from $100 per report to up to 6 months in prison! Depends on the state
In addition the interest on the monies that should have been turned over—can be up to 25%
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How Should Payroll Handle This?
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First and foremost set up written procedures for how to handle abandoned wages
Written procedures will help if there is an audit
Can help show intent to comply
General steps and then break out for each state’s requirements if multi-state employer
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Steps in Handling Abandoned Wages45
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Step 1
Identify the checks in question
Step 2
Perform the due diligence according to the state requirements
Step 3
File appropriate reports and remit funds when due
Then start
all over
again for the
next year
Not as
simple as it
sounds!
Identify the Checks in Question
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Create a spreadsheet that lists each check that is outstanding
Owner name
Check number
Check amount
Check date
Columns for audit trail are also needed
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Checks in Question
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How old should the check be?
Depends on your policy
6 months is common
But the sooner the better!
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Research Each Check
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Yes, each check!
Complete history of the check
Why? It may not be abandoned! Could be a void gone astray
Could be a check that was already replaced but no stop payment issued
Could be a bookkeeping error of some kind
Eliminate those first before beginning due diligence
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Researching the Checks
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If this is the first time, the list could be quite large
Keep an exact paper trail of each check taken off the list-document it!—some states require this as part of your documentation file--OH
Don’t forget to correct the original problem
Note each date for each step
You should be left with a list of abandoned wages…so now it is time to find the owner
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Due Diligence
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Start with current employees - faster with the clean up than terminated
Phone calls/e-mails are okay in this case to begin with—is it lying around the house? Do they remember it being issued?
Most of the time can resolve quickly
Keep the records straight when reissuing checks
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Reissuing Checks
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Make sure stop payments are issued before checks are reissued
Do not adjust payroll records if a check is reissued. The original payroll date is still the correct date.
Voiding and reissuing may require correction to Form W-2 and Quarterlies
Remember to update the spreadsheet as each check is identified and processed
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Terminated Employees and the Rest
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Formal letter will be needed
Sample with handout
Check with your legal before using for each state
Go back to the spreadsheet and add the last known address, phone number, and social security number for each of the remaining outstanding checks
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Create A Liability Account
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Now create a liability account for the remaining checks
Balance should match the spreadsheet total
Will help with any audits
Keep it in balance
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Sending Out the Letters
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Send the letter to each owner at the last known address
Check old Form W-2 files for address changes
Watch the time frames to make sure it matches what the state requires
Sit back and take a break
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Undeliverable Letter
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Letter comes back as undeliverable
Save the letter in the envelope if possible
Update the spreadsheet
Extra time on your hands: try Googling the name or the phone book but your due diligence is done for now
Some states are applying “searching public records” to employers as well as banks and financial institutions
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No Response
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Try at least three times
Save each attempt
Note each attempt on spreadsheet
Watch the time frame as well
Due diligence is then done
May have to report to state where incorporated such as Delaware
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Employee Responds Back
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Have system in place for identifying the owner
Driver’s license, bill with that address…
Handle each situation as to stop payments and reissues
Always update the spreadsheet
Try to have only one employee on this section
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File Report and Remit Funds
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Complete reports for each state upon its due date
Submit report and remit funds
Watch out for EFTs
Close out the list and start all over again
Many companies have two or three lists going at once covering several years reports
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Are There Any Questions?
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How Can Ascentis Help Me?
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