Payroll departments generate one of the most common types of abandoned and unclaimed property: uncashed checks. So, payroll personnel often know more about unclaimed property than others. Mistakes still can be made. The following are unclaimed property pitfalls, along with advice for solving them.
- Your third-party administrator contract doesn't transfer responsibility to the vendor, but you don't know until you are audited.
Third-party payroll contracts often don't address outstanding payments and unclaimed property, and each party tends to assume the other is taking responsibility. Auditors will look to the employer to document unclaimed property andpay penalties.
To avoid surprises, include unclaimed property concerns in contract negotiation from the beginning of the relationship. Outline specific responsibilities and clarify fees. Include guidelines outlining how frequently the vendor will provide detailed information about outstanding payments and document steps to reduce outstanding items.
- Live initial and final paychecks can be easily lost or forgotten by employees.
First paychecks are commonly live checks used while waiting for automatic deposits to be set up. Last paychecks are often handled outside of automatic deposits, because they include adjustments outside of the normal cycle for items such as uniform return, final healthcare benefit fees, and vacation payouts. These checks can become lost or forgotten easily.
To prevent them from turning into unclaimed property, add information in employee handbooks, orientation processes, and exit interviews, so employees are motivated to watch for them.
- Failure to capture forwarding addresses makes delivery of checks impossible.
Employees don't always inform employers of forwarding addresses when they move. Checks of any kind sent to old or incorrect forwarding addresses can get lost or returned and eventually turn into unclaimed property.
Help employees understand how they might miss important checks. Make it easy for them to notify the company of changing addresses through the employee handbook, website, benefit portal and exit interviews.
- Unclaimed property is generated in multiple departments, and reporting for those properties is not managed by payroll.
Most companies generate unclaimed property in a variety of departments. If it's not handled consistently, the entire company could be in jeopardy in the event of an audit.
To solve this, set up an unclaimed property team with representatives from all departments. Experienced payroll personnel can help others report properly.
- When property owners move to states not previously reported to, personnel must learn another set of laws and file yet another report.
Due to the fact that you have to report to the state of the last known address of the property owner, it can be challenging to keep up with the complexities of laws in multiple states and the many legislative changes.
Some companies research all states themselves, but it is time-consuming, costly and complex. Tracking services help holders keep up to date, but expertise is often lacking to translate changes into expert actions. The best option may be to consult with a professional advisory company that both monitors laws and translates them into recommendations, using deep expertise to reduce cost and risk.
- Auditors can target your company for reasons beyond your control.
Holders cannot control some situations that likely lead to an audit. Examples:
- Not reporting property types that are standard for your industry
- Reporting much less than similar organizations
- Mergers and acquisitions
- Claiming property owed to the company without being compliant
In these situations, a holder can carefully prepare for an audit and take action to reduce the length, frustration and potential cost of the audit.
- Reports are completed inaccurately or incompletely.
Mistakes in reporting not only cause failure to meet deadlines and result in additional staff time to research and redo, but they can draw attention to a holder and result in an audit. Common mistakes include: inaccurate dormancy calculations, incorrect use of property codes, and incorrect payment methods, as well as simple data entry issues and missing signatures.
Holders can take specific actions to avoid misreporting, such as formalizing unclaimed property reporting processes, scheduling plenty of time to prepare the report and scheduling signatures in advance. However, many companies rely on an outsourced unclaimed property provider to reduce the odds of non-compliance.
All of these potential pitfalls can lead to ineffective reporting, risk of audit, higher assessments, and higher stress. Payroll often experiences the abandoned and unclaimed property burden due to the sheer volume of payments. Begin planning now to overcome these potential issues and put solutions in place.