‘Ghosted’ by a Former Employee? Here’s What to Do with a Returned Check or W-2

 

By Lisa Nagele-Piazza, J.D., SHRM-SCP, and Allen Smith, J.D. February 20, 2019
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Employees leave their jobs for a variety of reasons, but employers still may need to contact separated workers to send final paychecks and other legally required information, such as W-2 statements. So what should employers do if these important documents are returned as undeliverable?

If an employee disappears on a former employer—also known as a type of "ghosting"—the employer needs to continue to send required notices, said Kristen Gallagher, an attorney with McDonald Carano in Las Vegas. "Whether an employee responds should not influence employers, as they need to be able to document their efforts to comply with all notice obligations."

When possible, employers should conduct exit interviews with departing employees to confirm that the contact information on file is correct, noted Isabel Crosby, an attorney with DLA Piper in Dallas.

Here are some common issues employers may encounter when former employees don't update their contact information.

Sending the Final Paycheck

Usually employers have notice of a worker's departure date, but there are times when employees leave abruptly and haven't updated their contact information. Employers still need to provide the final paycheck with all wages due to the employee.

Under federal law, there are no express provisions governing when final wages must be paid, so employers must look to state law. "Last-paycheck requirements vary drastically by state," said Eric Stevens and Rachel Rosenblatt, attorneys with Littler in Nashville, in a joint statement.

For example, many states simply require the employer to pay final wages by the next regular payday, but other states have stricter rules and require payment within a certain number of days after an employee's last day, or even immediately on the employee's final day of work.

In some states, if an employer fails to pay a departing employee within the legal time limits, the employer may have to pay penalties, interest and any of the employee's associated legal fees.

"Employers should attempt to provide an employee with his or her last paycheck via its normal method for delivery of paychecks," Stevens and Rosenblatt said. If a paycheck is returned as undeliverable, the employer should ensure that the address was correct and use other contact information (such as an e-mail address or phone number) to reach out to the employee and ask how the check can be delivered.

If the employer doesn't have a forwarding address, payment should usually be made to the last known address or through direct deposit—if the employee had authorized direct deposit, Crosby said.

"If the paycheck is ultimately undeliverable, the employer should continue to hold it and allow the employee to make contact to arrange pickup or delivery," Stevens and Rosenblatt added.

Check the applicable state's regulations to determine when abandoned wages must be turned over to the state under unclaimed property laws.

Returned W-2 Forms

Under federal law, employers must send employees their prior year's W-2 statement by Jan. 31 so employees can use the information to file their federal and state income tax returns.

What happens if a former employee's statement is returned as undeliverable? "This can be tricky," said Jennifer Betts, an attorney with Ogletree Deakins in Pittsburgh. First, confirm that the address on the envelope matches the former employee's last known address and doesn't have a typo on it, she said. Then, try to call the worker's last known number and leave a message.

"If the W-2 is returned as undeliverable, do not remove it from the envelope, as the sealed and stamped envelope is your proof that you made a good-faith effort to deliver the W-2 on time," said Nadine Abrahams, an attorney with Jackson Lewis in Chicago. Employers should make a copy of the stamped envelope and save it for their records, she added.

If employers make W-2s available electronically, they must give the former employee notice either by mail, by e-mail or in person. "If your attempt to provide electronic notice bounces back as undeliverable, you have 30 days to give notice via mail or in person," she said.

[SHRM members-only resource: Compliance Resources

According to IRS guidelines, employers are required to keep all records of employment taxes for at least four years, including employee copies of W-2s that were returned as undeliverable.

"Employers should ensure they comply with this record-keeping requirement, especially in case a former employee later resurfaces asking for a W-2 that he or she never received," said Marissa Mastroianni, an attorney with Cole Schotz in Hackensack, N.J.

"An employer should make all reasonable efforts to locate the former employee," she said. "In light of this digital era, it is much easier to locate a former employee who failed to leave a correct forwarding address than it has been in the past."

Failing to comply can be costly, Stevens and Rosenblatt noted. The IRS may impose substantial penalties on an employer that doesn't provide employees with their W-2 forms by the Jan. 31 deadline, unless the employer can show reasonable cause for the failure.  

The IRS does not provide specific steps for employers to follow when a W-2 is undeliverable, they added. "The key is to demonstrate that a reasonable effort was made to fulfill the employer's obligation."

Regularly Update Records

These issues highlight the importance of developing employee handbook policies that require employees to notify their employer of any changes to their contact information, beneficiary designations and other important information, Mastroianni said. "The more information an employer has in the employee's personnel file, the more likely the employer will be able to locate the former employee in the future."

When possible, employers should ask workers to update their contact information before they leave and encourage them to reach out if anything changes, she said.

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