When an employee passes away, there are several key considerations to keep in mind. From packing up his desk to working with his family on insurance and 401k issues, another process to navigate is that of payroll. Many companies have a specific payroll procedure to follow for deceased employees, which ensures that the deceased employee's monies are properly accounted for and redirected.
For you to take any steps to resolve the employee's wages and process his final check, you need verifiable proof of his death. Request a copy of the death certificate from the family that can be placed into the employee's personnel file and forwarded along to your company's human resources representative, which allows the company to move forward with payroll processing for the employee's final wages.
Depending on the state in which you live, the final wages for a deceased employee may go to the executor for the deceased's estate or his next of kin, which is usually a spouse or dependent. This may be contingent upon the employee's estate organization, final will and testament and process dictated by state law. For example, in Texas, a deceased individual's final wages are paid to his estate unless there is an authorized spouse and there is no other executor of the person's estate.
Differentiate Between Living and Deceased Wages
Notate in your accounting files what wages were paid after the death of the employee, and continue to take out FICA if the final paycheck is cut within the same year of the employee's death, states Business Management Daily. If the final paycheck goes to the employee's spouse, include her social security number on the Form 1099-MISC, which must be submitted to the IRS following the employee's passing.
When a person passes unexpectedly, things can get messy quickly and the employee's estate may be in disarray at first. Before you do anything, consult with your company's in-house legal counsel on the most appropriate next steps for your payroll department. If you have a misstep and say, pay out the deceased person's wages to the wrong person, you open your company up to potential litigation from the decease employee's estate.