Unclaimed checks from past employees fall under state abandoned property law. The state abandoned property laws governing abandoned property are known as escheat laws because the property “escheats” or reverts property to the state.
Here’s what you need to do.
Step 1: Document every contact you made to the ex-employee.
Most states require employers to contact employees in an attempt to keep unclaimed wages from becoming abandoned property.
Step 2: File an annual report with your state.
States generally require the employer to file an annual report. The report includes each employee’s full name, last known address, amount and payment date of the unclaimed checks, and the date of the last contact with the employee.
Step 3: Send the unclaimed wages with the report.
With that report, the wages need to be sent to the State Treasury. The State Treasury will “hold on” to the money indefinitely for the individual. As an employer, your responsibility for paying those wages is over when you have submitted those funds and complete information to the state.
Some states put a minimum amount such as $50.00 and below in which the unclaimed wages DO NOT have to be reported or sent to the state. Check with your state on whether this rule applies to you. If, in fact, you don’t have to send it to the state it needs to be reported as income to the employer. It is also subject to federal income tax.
Head on over to our blog post to learn more and also see when unclaimed wages become abandoned in your state.