Businesses must turn over funds for uncashed paychecks to the state.
States consider payroll checks that employees do not cash unclaimed or abandoned property, which falls under the state's escheatment or abandoned property laws. Businesses must maintain a record of accounts and report to the state when employees fail to cash the check and collect the funds. The state will safeguard the funds for the rightful owner and process claims to disperse the money.
Escheatment Laws
Escheatment laws require businesses to turn abandoned property, including the funds for unclaimed paychecks, to the state. The state provides a single source for businesses to turn over abandoned property or funds and for owners to collect payroll money and other types of property. Individuals who may have abandoned property can contact the state to receive the owed payment.
Due Diligence
The state escheatment laws may also require the business to attempt to return the property to the rightful owner. The business may give notice to the owner of the payroll check that the funds are available and may be turned over to the state under the abandoned property laws. While some states require businesses to attempt to contact the property owner, others have no such requirement.
Time
The laws require a business to turn over the unclaimed funds within a specific amount of time, which varies from state to state. For example, businesses must turn over assets, including unclaimed payroll funds, to the state after three years in New Jersey. States require business owners to file a report of all unclaimed property each year. The business also must maintain records of the property owner's name and last-reported address up to five years after filing with the state. There is no limit on the amount of time to make a claim for payroll funds with the state.
Penalties
States have the right to investigate and audit businesses for violations of the escheatment laws. The state may penalize the business for failing to report abandoned property as well as for failing to turn it over. Businesses must maintain records of accounts in the event the state conducts an audit or investigation.
