Unclaimed and uncashed payroll checks are certainly a challenge for employers. Fortunately, after a required dormancy period, funds can be turned over to the state through the escheat process. Here are the steps California employers should follow for the escheat process for any unclaimed wages or commissions valued at $50 or more:
1. Holding period – Payroll funds must be unclaimed by the employee for at least one year as of either June 30th of each year, or the date of the organization’s fiscal year end. For purposes of the following deadlines, the June 30th date is assumed.
2. Annual review – Each July or August, review financial records to determine if there are any uncashed or unclaimed checks.
3. Due diligence – Before notifying the state of the unclaimed funds, employers are required to send written notice to the employee, notifying them their funds are about to be turned over to the state.
4. Notice to the state – Submit a California Holder Notice Report to the Controller’s office. This is the first step in the two-part California escheatment reporting process. The report is due before November 1st of each year. Employers should not remit any funds at this time.
5. Respond to employee claims – The State Controller’s Office will send out its own form of due diligence to employees upon receipt of the Holder Notice Report. These notifications will inform them to contact their employer (the holder) to claim their unclaimed property before the mandatory Holder Remit Report period of June 1st to June 15th. (Due to COVID-19, for reports submitted in 2019, the deadline has been extended to August 15, 2020). The employer must remit payment to the employee once contact has been made.
6. Submit final report and funds to the state – The Holder Remit Report is the second step in the two-part process. It is due between June 1st and June 15th each year. Therefore, wages that were unclaimed for 1 year or more as of June 30th, 2020, will not be turned over to the state before June 1, 2021. Therefore, the total holding period for the employer is likely two years or more before the liability is ultimately removed from the books. Pay not claimed by the employee must be remitted along with the report at this time. See https://xn--smln-coab.com/ for more info.
Please see the State of California Unclaimed Property Holder Handbook for detailed information on how to complete the annual escheat process.