Payroll Department’s Role in Handling Abandoned Wages

Money on table for salary

Within the intricate world of an organization, the payroll department serves as a vital cog in the machine, diligently ensuring employees receive their rightful compensation on time and accurately. This timely and accurate disbursement of wages not only directly impacts employee morale and satisfaction but also plays a crucial role in maintaining legal compliance with payroll and labor regulations. However, even the most efficient payroll system can encounter situations where employee wages remain unclaimed for various reasons.

This article delves into the concept of unclaimed wages, also known as abandoned wages, and explores the crucial role the payroll department plays in recovering and returning this rightful income to employees.

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Understanding Unclaimed Wages

Unclaimed wages essentially refer to earned income that hasn’t been collected by an employee after a specific period of time mandated by state law. This situation can arise due to several factors:

  • Employee Turnover: Job changes are a frequent occurrence in today’s dynamic work environment. Sometimes, in the whirlwind of transitions, employees may forget to update their contact information with their previous employer. This can lead to their final paycheck or any outstanding wages remaining unclaimed.
  • Data Errors: Typos or inaccuracies in employee-provided bank account details can cause direct deposits to fail. These failed deposits become unclaimed wages since the physical paycheck, if applicable, might not have been retrieved either.
  • Lost or Undelivered Checks: While less common in the age of direct deposit, physical paychecks can get lost in the mail system. Undelivered checks can result in unclaimed wages.
  • Unexpected Events: In unfortunate circumstances, an employee’s passing without a designated beneficiary for their final pay may lead to an unclaimed wage situation.

The Payroll Department’s Response to Unclaimed Wages

Once the payroll department identifies a potential case of unclaimed wages, they adopt a proactive approach to locate the employee and ensure they receive their rightful income. Here’s a detailed breakdown of the steps typically involved:

1. Identifying Unclaimed Funds:

Modern payroll software is often equipped with automated functionalities that play a critical role in identifying unclaimed wages. These systems can be programmed with alerts that flag any unclaimed wages exceeding a predetermined period, typically around a year. This allows the payroll department to initiate the search process promptly.

2. Internal Search:

The initial stage involves the payroll team conducting a thorough search of their internal records. This search aims to locate any updated contact information for the employee that might be present within the company database. Updated contact information could be in the form of a new address, phone number, or email address provided by the employee before leaving the company.

3. Utilizing External Resources:

If the internal search yields no leads, the payroll department might explore external resources to track down the missing employee. These resources can include:

  • Public Records Databases: Publicly available databases containing residential addresses and phone numbers can be utilized to locate the employee. This type of search may be particularly useful if the employee has moved within the same state.
  • Professional Search Services: In complex cases where the employee might have relocated to a different state, the department may consider utilizing professional search services specializing in locating individuals.

4. Communication Efforts:

Once a potential lead is established, the payroll department will take steps to initiate communication with the employee. This might involve:

  • Phone Calls: Outbound calls to the potential contact information located can be made to reach the employee directly.
  • Email Outreach: Emails can be sent to the employee’s last known email address on record, outlining the situation and providing instructions for claiming the unclaimed wages.
  • Certified Mail: Sending a certified mail letter to the employee’s last known address serves as a documented attempt to reach out, even if the letter is returned as undeliverable.

Throughout the communication process, the payroll department meticulously documents all undertaken efforts to locate the employee. This documentation serves as crucial evidence demonstrating that they made a sincere attempt to return the wages to the rightful owner.

5. Escheatment Process:

Despite the exhaustive attempts outlined above, if all efforts to locate the employee fail within a specific timeframe mandated by state law (usually ranging from one to three years), the unclaimed wages may enter the escheatment process. Escheatment is the legal term for the transfer of unclaimed property, including wages, to the state treasury.

However, this doesn’t entirely eliminate the possibility of the employee reclaiming their funds. Most states hold unclaimed wages for a specific period, allowing the rightful owner to come forward and claim their rightful income with proper identification.

Unclaimed Wages: Beyond Ethics, Building Trust and Compliance

  • Ensuring Ethical Practices: The payroll department’s commitment to recovering and returning unclaimed wages reflects a dedication to ethical practices. Holding onto unclaimed funds wouldn’t be ethical, and actively seeking to reunite employees with their rightful income demonstrates fairness and integrity.
  • Compliance with Regulations: State and federal labor laws often mandate specific procedures for handling unclaimed wages. By adhering to these regulations, the payroll department safeguards the organization from potential legal or financial penalties associated with non-compliance.
  • Building Employee Trust: The knowledge that the payroll department makes every effort to return unclaimed wages fosters a sense of trust and security among employees. It sends a message that the organization values its workforce and strives to ensure they receive their rightful compensation, even after they leave.

Streamlined System to Reduce Abandoned Wages

While a strong payroll department will diligently pursue recovering unclaimed wages, a streamlined system can significantly improve efficiency and reduce the number of unclaimed cases. Here’s how:

  • Maintaining Accurate Employee Records: Regularly encouraging employees to update their contact information within the payroll system is essential. Implementing a system that automatically reminds employees to update their details before a certain period can be highly beneficial.
  • Utilizing Multiple Payment Methods: Offering a variety of payment options, including direct deposit, physical checks, and payroll cards, allows employees to choose the method that best suits their needs. This can minimize potential issues related to failed deposits due to inaccurate bank account details.
  • Automated Alerts: As mentioned earlier, utilizing automated alerts within payroll software that flag unclaimed wages after a set period allows for prompt identification of potential cases. This enables the payroll department to initiate the recovery process swiftly.


Payroll departments play a critical role in ensuring timely and accurate payment of employee wages. However, even the most efficient systems can encounter situations where wages remain unclaimed. The department’s commitment to recovering these funds and returning them to their rightful owners is a testament to ethical practices, regulatory compliance, and employee trust. By implementing a streamlined system for managing unclaimed wages, organizations can further minimize such instances and ensure their employees receive their earned compensation.

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