• Cory S. Noeller, CPA

How Should Your Business Account for Unclaimed Wages?

Any business or organization that has possession of unclaimed property, including unclaimed or uncashed payroll checks, is required to report and turn over the property to the Department of Revenue. All 50 states have provisions regarding how to treat unclaimed property, and the requirements are very similar in one regard—how to determine if the property, in this case the paycheck, is abandoned and when to report this information to the state.

When an employee does not claim or cash a paycheck, the employer typically holds on to the money and it becomes a "stale dated" check. There is no single procedure employers must follow. Different employers have different policies. Some companies and businesses have definite time limits as to when a stale dated check is then voided. In the event a stale dated check becomes void, an employee can usually request a replacement check. At that point, a replacement check might be issued, and a stop payment process on the original check takes place.

Stale dated checks are considered dormant if the owner of a property has not indicated an interest in the property or if no contact has been made for the allotted dormancy period for that property. Dormancy periods in Wisconsin vary by property type. Generally, most property types have a 5-year dormancy period, but wages, payroll and salary have a dormancy period of 1 year. After the dormancy period, the paycheck amount is to be reported and turned over to the state as abandoned. At that point, the state takes ownership of the account under a process of ‘escheatment’.

Before an employer turns over any unclaimed wages, the employer must make a good faith effort to locate the owners of the properties and must exhaust all options to locate the property’s rightful owner. A notification letter, via first class mail, must be sent to the owner of properties valued at $50 or more, to the owner’s last known address during the legal notification period unless the owner's last known address is recorded as invalid. For unclaimed or uncashed paychecks that will be reported on November 1, letters must be sent between July 1 and September 1. Employers are required to keep a copy of the letter for 5 years and provide the letter upon request by the department.

States have increased enforcement of unclaimed property laws over the years. Most states have increased the size of the unclaimed property offices (including the number of auditors), the number of audits done and the educational programs dealing with this topic.

Unclaimed Wages of Small Business Owners

Small business owners may have the best of intentions when, instead of cashing their paychecks, they let them stack up in a drawer. If cash flow is tight, the owner may see this as a way to ease the crunch. This strategy may work on a short-term basis, but if the owner unexpectedly dies, those checks could become part of a probate claim, depending on the circumstances.

(Edward N. Gerczak Jr. v. Estate of Edward N. Gerczak Sr., No. 2005-AP70-FT, 6/14/05)

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