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death of an employee

How to Handle the Death of an Employee in Your Small Business

An employee’s death can be sudden and unexpected. But, you can’t be caught unaware by your employer responsibilities for handling the death of an employee.

Although a difficult topic, you need to know what to do when an employee dies. From notifying your staff to paying out deceased employee wages, you can’t neglect your duties. Not to mention, how you handle an employee’s death speaks volumes about you and your business.

5 things to do after the death of an employee

Unfortunately, your business can’t pause when an employee passes. In fact, your (and your employees’) responsibilities increase.

If you fail to do the following in a timely manner, you could end up making matters worse. Stay on top of your moral and legal responsibilities by including the following in your death of an employee policy.

death of an employee

Contact the employee’s family

When an employee dies, reach out to their family. You can express your condolences and ask information about funeral arrangements. Consider sending flowers or a sympathy card. If you ask what happened, be sensitive and mindful of the family’s grief.

After the funeral, plan a time to meet with the employee’s beneficiary or beneficiaries. Explain that you need to talk about the employee’s final paycheck and benefits transition. You might leave your name and number so the family member can call you when they are ready.

Notify employees and customers

As the head of your workforce, you must convey the death of an employee to your other employees.

You might set up a meeting to tell staff members at the same time. And, employees can talk through the situation in an open space. Let employees know that your door is open if they need to talk.

Be considerate of funeral arrangements and encourage employees to attend. Let employees know the date, time, and location of services, as well as where they can send flowers or donations. If possible, offer paid bereavement leave to employees attending the funeral.

More than likely, you will need other employees to cover the deceased employee’s workload. Divvy up responsibilities among your employees.

If you plan on replacing the deceased employee in the future, tactfully let your workforce know. Tell employees when you plan to start the hiring process.

After your workforce knows about the employee’s death, reach out to customers who worked directly with the employee, if applicable. Let customers know that the employee passed away and explain who they can work with moving forward.

Issue final paycheck to the employee’s beneficiary

When an employee dies, withhold taxes from their wages (if applicable), issue their final wages to their beneficiary or estate, and report the payment to the IRS.

Taxes

If you pay the wages in the calendar year that the employee died, do not deduct federal income tax. However, withhold Social Security and Medicare taxes from the wages as usual.

If you issue the wages in the following calendar year, do not withhold federal income, Social Security, or Medicare taxes.

Paycheck

If the employee did not cash a paycheck before they died, you need to cancel it. Canceling the uncashed check prevents it from becoming escheated property. Reissue a new check to the employee’s beneficiary.

If you owe the employee wages after they died, meet with the employee’s beneficiary. Ask the beneficiary to complete Form W-9. Then, pay the employee’s final wages to the beneficiary.

You might also include accrued time off in the employee’s final paycheck.

Reporting

Report the wages on the deceased employee’s Form W-2 if you issue them the same year the employee died. Only report the wages you pay after the employee’s death as Social Security and Medicare wages (not federal income tax wages).

If you pay the employee’s wages the year after they die, do not report them on the W-2 form.

Report the wages you pay to the employee’s beneficiary on Form 1099-MISC if you still owed the employee wages after they died. Do not report the wages on Form 1099-MISC if you reissue an uncashed check.

Take care of the deceased’s benefits

Do you offer benefits like health insurance, life insurance, and retirement plans? If so, notify benefit providers after the death of an employee. And, talk with the employee’s beneficiary about how they can receive the benefits.

You may need to show a copy of the employee’s death certificate to benefit providers. Ask the employee’s beneficiary for a copy.

If your employee’s spouse or dependents were on the deceased employee’s health insurance plan, let them know that their coverage is ending. You may need to provide COBRA coverage to the spouse and dependent. COBRA temporarily provides health insurance coverage to impacted individuals.

Update your business to reflect the employee’s death

After addressing the above, remove the deceased from your business’s payroll, website, and phone and email systems. If the employee used a security badge or password to access your business, disable it.

Forward emails, voicemails, and phone calls to yourself or another employee. If you use payroll software, remove the deceased from the system.

Keep payroll records for at least three years. Store employment tax records for at least four years. Hang onto other documents, like a copy of COBRA or other benefits paperwork.

Simplify the way you run payroll, access records, and make personale changes with Patriot’s online payroll software. And if you have questions, you can contact our expert support via phone, email, or chat. Start your free trial now.  

This is not intended as legal advice; for more information, please click here.

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