Handling Unclaimed or 1. Abandoned Wages: What Payroll Needs to Know

Handling Unclaimed or 1 Abandoned Wages: What Payroll Needs to Know Presented Wednesday, February 25, 2015

RCH Credit 3 To earn RCH, you must Stay on the webinar for the full 60 minutes Be watching the webinar using your unique URL Certificates delivered electronically, to email address with which you registered Certificates delivered no later than March 25th

About the Speaker 4 Vicki M. Lambert, CPP, is President and Academic Director of Vicki M. Lambert, LLC, a firm specializing in payroll education and training. Known as The Payroll Advisor, Ms. Lambert is Founder and Director of www.thepayrolladvisor.com, a website that provides unique and expert services for anyone dealing with the complexities and technicalities of the payroll process. As an adjunct faculty member at Brandman University, Ms. Lambert is the creator and instructor for the Practical Payroll Online payroll training program, which is approved by the APA for recertification credits.

5 What Is Our Focus For Today? 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

Names It Goes By 6 Abandoned wages Unclaimed property Escheat

Pronunciation and Definition 7 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.

OR 8 The property escheats to the state when a person dies without a will and there are no heirs. The term is also applied to unclaimed properties in a financial institution. After a period of time the institution must turn over the properties to the state.

More Definitions 9 Unclaimed Property: Consists of various types of personal property including intangible. Items such as checking and savings accounts, uncashed checks, insurance refunds and wages are examples of unclaimed property

More Definitions 10 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

How Long To Hold the Money 11 Governed by state law Period of inactivity Known as the dormancy period

Why Are the States Involved? 12 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

Uniform Unclaimed Property Act 13 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

Property Covered by the Act 14 Bank deposits Securities Dividends Traveler s checks Other or miscellaneous debts (wages, credit balances etc) This is where payroll comes in

Derivative Rights 15 Rights of the state to collect unclaimed property are derived from the owner The state stands in the shoes of the owner

The States and the Courts 16 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

Private Efforts v State Efforts 17 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!

Why So Important 18 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

State Efforts 19 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!

The Laws 20 Each state has its own laws These include: When considered abandoned When to report/remit How to report/remit Due Diligence

Finding Those Laws 21 Google abandoned property or Link to states websites http://www.unclaimed.org/re porting/ part of NAUPA (National Assoc. of Unclaimed Property Administrators) Look for holder reporting

Using Google (any search engine) 22 Google abandoned property example for Nebraska

And We Get 23 Then click on Unclaimed Property

And We Get 24 Now you need to decide what to click on. In this case it would be submit holder report

And We Get 25 Now you have access to the information you need to begin

NAUPA Website 26 Link to states websites http://www.unclaime d.org/reporting/ Click on state you want Begin the same process as with Google search except website comes right up Example--Nebraska

NAUPA Website 27 What will pop up is the above info which leads you to the website

And We Arrive At 28 Where you want to be to start researching

29 When Considered Abandoned Wages are generally one year after becoming payable Example: California, Florida, Louisiana and most other states with the exceptions of: Two Years Three Years Five Years North Dakota Kentucky Delaware Pennsylvania Maryland Mississippi Massachusetts Oregon Missouri 3 years after 1-1-15 2014 The Payroll Advisor

Agent Issued Stale Dated Payroll Checks 30 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 redeposited payroll checks as unclaimed.

Agent Issued Stale Dated Payroll Checks 31 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.

When to Report/Remit 32 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

States that Differ From Nov 1 33 State Due Date End Date Connecticut Within 90 Days (March 31 st ) 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

34 How to Report 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

35 How to Report 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

How to Remit 36 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

What is Due Diligence? 37 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

Examples: Due Diligence 38 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.

Due Diligence-Example Iowa 39

40 What Does This Notice Need? 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.

41 What Does This Notice Need? 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.

42 2014 The Payroll Advisor

What if the Owner Responds? 43 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.

What Happens If a Company Doesn t Comply? 44 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

45 How Should Payroll Handle This? 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

Steps in Handling Abandoned Wages 46 Identify the checks in question Due diligence File reports and submit funds Start all over again Not actually as simple as it sounds!

Identify the Checks in Question 47 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

Checks in Question 48 How old should the check be? Depends on your policy 6 months is common But the sooner the better!

49 Yes, each check! Research 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

Researching the Checks 50 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

51 Due Diligence 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

Reissuing Checks 52 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

Terminated Employees and the Rest 53 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

Create A Liability Account 54 Now create a liability account for the remaining checks Balance should match the spreadsheet total Will help with any audits Keep it in balance

Sending Out the Letters 55 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

Undeliverable Letter 56 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

No Response 57 Try at least three times Save each attempt Note each attempt on spreadsheet Watch the time frame as well Due diligence is then done

58 Employee Responds Back 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

File Report and Remit Funds 59 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

60 What We Covered Today 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

61 Are There Any Questions?

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