Handling a Deceased Employee’s Final Paycheck: Best Practices and Legal Considerations
We have an employee who recently passed away. He wasn’t married, didn’t have a will, and didn’t have company life insurance or death benefits. How do we handle his final paycheck? Do we continue with our regular payroll procedures, should we wait for the beneficiary for his estate to be identified, or something else?
When considering what to do with a deceased employee’s last paycheck, you must consider the laws of your state. In some states, the final wages may be claimed directly by a spouse. Because your employee was not married, the best practice would be to pay the wages to the deceased employee’s estate.
The estate is administered by a managing role called a personal representative or executor. The powers and duties of a personal representative or executor may vary by state, but their goal is identical; to administer the estate and resolve all outstanding issues for the deceased employee. For our purposes, let’s use the term personal representative.
The personal representative will petition the Court to open an estate. This is not always a speedy process, so it is likely the funds due to a deceased person will be held by your company until an estate has been opened. Some states provide specific requirements for the timeline of a payment of funds due to the survivors or an estate. Most states do not have clear timelines. Therefore, it is wise to speak with local counsel to determine what timelines your business may be bound to follow.
Based upon the information included in your question, it seems that you already knew of the employee’s passing and his apparent lack of will. A lack of will or other advanced planning documents does not prevent an estate from being opened, nor does it prevent a claim for the deceased employee’s final wages. In fact, state laws set forth procedures for deceased persons who lack advanced planning. While the deceased employee may not have been married, it does not mean that there is no beneficiary to his estate. As part of the administration of the estate, the personal representative will collect any sums due to the decedent and subsequently disburse them to any beneficiaries pursuant to state law.
In the event that you were unaware of the employee’s passing and direct deposit their paycheck, you should not request that it be returned. Any financial accounts held by the deceased employee will be transferred to a beneficiary or into the estate. However, if a payment is pending, it should be cancelled and held pending disbursement to the estate. Upon learning of the employee’s passing, you should update your payroll system to ensure no overpayment. It is typical that at the time of passing, a person may be owed wages. In fact, the deceased employee may be due compensation for sick time and accrued paid time off. Upon the passing of any active employee, it is important to run through all of these categories to determine the amount of funds owed to a beneficiary or the estate.
Given that laws differ from state to state, you should consult a local attorney to create a policy, with any required timelines, in the event that this happens again. Your business must also consider federal laws to determine the withholding amount of employment taxes, along with determining the type of forms which will be issued for tax purposes.
This article, slightly modified to note recent updates, was featured online in the Great Lakes Employment Law Letter and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.