Abandoned wages are also known as unclaimed wages. Basically, when employees do not claim their wage for the work they have already done or didn’t cash out the cheque, it will be counted as an abandoned wage. This is common in situations where employees quit their job, passed away, or didn’t want to pick up the last payment for any reason.
This is based on the Unclaimed Property Act of 1954 and the handling of the procedure falls under Consumer Protection Act. All properties and wages unclaimed by their owners are directed to the government and would be counted as government property until the owner claims it back. These laws are slightly different in each state, specifically the duration to call properties or wages abandoned.
According to the Unclaimed Property Act, if you are withholding the property of someone else, you must turn the property over to the state government. The government will be the sole owner of the property and wages until the real owner is found and given their earned wage. In the meantime, the abandoned wages will be invested and the government can profit from the investments.
What should a payroll professional do with the abandoned wages?
As a payroll professional, it’s your job and responsibility to identify and handle unclaimed wages. Payroll professionals must try to contact and locate the owner of the abandoned wages and if they fail to do so, turn over the wages to the government according to the state law.
It’s not an easy task to identify abandoned wages; it takes time and effort. Payroll professionals must run audits of all company payrolls and the cheques issued. This must be done on a quarterly or annual basis to basically highlight the red flags, and track to solve them or keep accurate records.
Payroll professionals must understand and comply with the state laws (and the state law of your employees). Having a clear understanding of the state laws will also give you knowledge of the time range in which wages will be considered abandoned. Most states will require you to check records of a year old, and report the abandoned wages by November 1st of every year. But in some states, it’s different due dates, hence it is important to know them and comply accordingly.
Remember that as a payroll professional, it is your responsibility to contact the owners of abandoned wages as soon as you consider them abandoned according to the law or before.
What would happen if payroll professionals fail to handle abandoned wages appropriately?
It is critical for payroll professionals to track payments, be aware of the state laws for abandoned wages, and keep records. Failure to handle abandoned wages can cost the company some heavy penalties and payroll audits.
Most of the time, the state will hire a third-party agency to run audits. The agencies will check payrolls and perform audits to mainly find red flags, which is definitely not in the best interest of the company. This would eventually lead to many hefty penalties and complications.
The best way to avoid the situation is to correctly report abandoned wages in a timely manner.
Final Words
It’s important to have proper documentation of procedures while claiming wages. It’s the payroll professional’s responsibility to hand over the abandoned wages to the right person.
To avoid all such cases, organizations can directly deposit the wage to the employee’s account or put the wage on a pay card, this way the wages cannot be considered abandoned wages.
