Step 2: Check the applicable employment laws
There are many laws that affect how to pay out any final accrued salary and benefits to a deceased employee.
Some states won’t allow the check to be paid to the next of kin and must instead be paid to the estate. State laws can also dictate whether the benefits are subject to state income tax withholding, what the max payable amount is before probate, and other conditions that must be met.
And don’t assume you can just send it through the employee’s direct deposit – the account could be frozen, and thus the money is returned, or the family may not have access to the account, etc. Difficult though it may be, it’s best to contact the family and find the best person to issue the check – but make sure you aren’t violating any laws in doing so.
Federally, you likely won’t have to withhold income taxes (unless the check is paid out the following year), but FUTA still applies. If your state follows FUTA regulations, then SUTA is also likely to be applicable. If you don’t know, check with your legal advisor or, better yet, just leave it to your PEO.
Step 3: Know what forms are required
Before you can even begin issuing the check, however, you need to get confirmation of the person’s death. The final payment is on hold until this information has been verified. You will also need the employee’s legal ID information, as well as the Tax ID or the Social Security number of the estate’s legal representative.
The paperwork that goes with a deceased employee’s accrued wages and benefits payout is quite hefty. This is somewhat dependent on who is receiving that final check, the estate or another representative, as well as the laws in place.
Don’t forget that a W-2 and/or 1099-MISC are the bare minimum of what must be issued with the paycheck.
Social Security, Medicare and applicable jurisdictions must all be contacted and notified of the final amounts withheld from the deceased’s paycheck. If there were garnishments on the check, those parties must also be contacted.
Yes, there's (way) more
Honestly, there’s a lot more involved in the processes that take place when a deceased employee has an outstanding paycheck or payout of benefits. Do they own stocks? Does the company PTO policy also include a payout of the accrued days off? Is there a workers' compensation or ADA claim involved?
The easiest solution – contact G&A Partners to find out how our team of experts can handle your payroll questions and problems for you.