Q 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 wasn’t married, the best practice would be to pay the wages to the deceased employee’s estate.
The estate is administered by 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.
The personal representative will petition the court to open an estate. This isn’t always a speedy process, so it’s likely the funds owed to a deceased person will be held by your company until an estate has been opened. Some states provide specific requirements for the timeline in which to pay funds owed to the survivors or an estate. Most states don’t have clear timelines. Therefore, it’s wise to speak with local counsel to determine what timelines you may be bound to follow.
A lack of will or other advanced planning documents doesn’t 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. Although the deceased employee may not have been married, it doesn’t mean there’s no beneficiary to his estate. As part of the estate administration, the personal representative will collect any sums owed to the decedent and disburse them to any beneficiaries under state law.
In the event you were unaware of the employee’s passing and direct deposit their paycheck, you shouldn’t 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’s typical that at the time of passing, a person may be owed wages. In fact, the deceased employee may be owed compensation for sick time and accrued paid time off. Upon the passing of any active employee, it’s important to run through all of these categories to determine the amount 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 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 that will be issued for tax purposes.
Elizabeth Lanzhammer is a partner with Axley Brynelson, LLP, in Madison, Wisconsin. She can be reached at 608-283-6718 or elanzhammer@axley.com.
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