How does an employer pay a former employees who could not be located?

Employers who have elected to participate in the affirmative defense provisions of the statute are required, among other obligations, to make “payments by no later than December 15, 2016, to each employee to whom the wages are due, or to the Labor Commissioner pursuant to Section 96.7 for any employee whom the employer cannot locate.” (Labor Code section 226.2(b)(4) [emphasis added].) Labor Code section 96.7 refers to the Industrial Relations Unpaid Wage Fund.

Employers must use due diligence to track down and pay former employees. If unsuccessful, the money due to employees who cannot be located must be paid into the Unpaid Wage Fund. This payment must be accompanied by an additional administrative fee equal to one-half of one percent of the “aggregate payments made” or $2,500, whichever is less.

Instructions for making payments to the Unpaid Wage Fund:

Required items:

1. A statement in both printed and electronic format* that lists the following information for each employee covered by the payment:

• Name
• Net amount payable to the employee after withholding**
• If available, employee’s last known address and social security number

2. One check for the total of all amounts being paid into the Fund at that time for employees who could not be located.

3. A second check equal to ½ of 1% (.005) of the amount in item 2 or $2500.00, whichever is less.

Please send all of these items by no later than December 15, 2016, to the following address.

We recommend sending everything by certified mail, return receipt requested, in order to confirm timely delivery and receipt.

*Providing Statement to Unpaid Wage Fund in Electronic Format

Employers are encouraged to use the Form 40  when reporting wage payments to the Unpaid Wage Fund. An electronic copy of the Form 40 or other statement should be placed on a password-protected CD or thumb drive that is sent along with the physical payment. (Please include contact information on the cover letter, so the Labor Commissioner’s staff can contact you to obtain the password.)  Otherwise, the information can be sent by email to 3rdPartySettlements-UWF&AB1513@dir.ca.gov .  If sent by email, the transmission should be encrypted, and the sender will also need to provide enough information in the email message to associate the transmission with the items arriving by regular mail.

**Note on Payroll Taxes and Withholding:

The payments to be made to employees and former employees under Labor Code section 226.2 are in the nature of back wages or supplemental wages, and are subject to payroll taxes, tax withholding, and tax reporting. This is true of both the payments made directly to current and former employees who are located, and for former employees who could not be located and whose payment will be made into the Unpaid Wage Fund. If an employer is making a payment into the Unpaid Wage Fund for a former employee who could not be located, the employer should perform all tax withholding, tax payment and tax reporting for that payment, and pay only the net amount due to the employee into the Unpaid Wage Fund.

If employers have questions about how to properly handle payroll taxes, withholding and reporting for these payments, they may contact the EDD Taxpayer Assistance Center at 1-888-745-3886.

Finally, employers are reminded of their obligation under subdivision (d)(3) of Section 226.2 to “preserve all records of hours worked, calculations of hours worked, and records of payments made to employees and the Labor Commissioner . . . until December 16, 2020, and furnish the records related to an employee on request by the employee.”

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