When An Employee Passes Away: Legal and Financial Considerations for Employers

An employe;s death is a tragedy that can affect any business. Small businesses with a few employees may feel the impact even harder. Nevertheless, there are legal ramifications that an employer must consider. Read these five steps to ensure that yo-re following the law when issuing final wages and benefits as a result of an employee death.

Before you authorize any pay or death benefits, verify the employe-s passing by obtaining a copy of the death certificate. Though it may seem insensitive to the employe's family, verifying the death certificate is essential to prevent fraud or abuse.

Issue Outstanding and Final Pay

When you receive confirmation of your employe's passing, assess any final and outstanding pay due to them. Your state may have labor laws that require you to issue payment within a certain time period once yo've received notice of the death.

Typically, wages and compensation are paid to either the employe's legal representative, such as an executor, or to their estate - not directly to a relative. If your state laws require that you direct the payment to the employe's estate, you may need to know the estat's federal tax ID number.

Contact Your Benefit Providers

If your business provides life insurance, retirement benefits, health insurance, or other benefits to employees, contact your providers as soon as possible.

Most group health plans sponsored by employers must comply with the Employee Retirement Income Security Act of 1974 (ERISA), a Federal law that sets standards to protect employee benefits. One of the protections contained in the law is an employe's right to COBRA (Consolidated Omnibus Budget Reconciliation Act) continuation coverage, a temporary continuation of group health coverage that extends coverage due to life events like termination of employment, death, and divorce. COBRA generally applies to all private-sector group health plans that have at least 20 employees on more

than 50 percent of its typical business days in the previous calendar year.

If COBRA applies to your business, a deceased employe's spouse and dependants will likely qualify for continuing benefits. To enable their coverage, you will need to contact your healthcare provider and file necessary paperwork. Learn more about COBRA coverage at Business.gov.

If the employee's death occurred while they were on the job, notify your workers' compensation insurance provider. Many workers' compensation plans provide benefits to the family of the deceased. Learn about how to comply with OSHA requirements for your business and visit your state workers' compensation website for details on the laws in your area.

Communicate with the Deceased's Family and Other Employees

If you do not already have a standard template in your employee handbook, create a consolidated list of information regarding final pay, benefits, and contact information and provide it to the deceased employee's next of kin or legal representative. If the deceased employee has personal belongings in an office or workstation, inquire if the family or representative would like to collect the belongings.

Consider how to communicate the news to your other employees. Be mindful that there may be legal restrictions on information you publicly share. Contact your state labor office if have questions about what information is appropriate to relay.

If you have an Employee Assistance Program (EAP), inform your employees that they can seek free counseling through the program to help them absorb the news. Depending on the EAP program, family members of the deceased employee may also be eligible for this service, which you may inform them of, along with the other benefits and pay information.

Maintain Continuity of Your Workforce

Assess the tasks and duties that the deceased employee was responsible for. Work with your other employees to create a temporary coverage plan that ensure that all essential work continues. Consider that you may need to temporarily hire an independent contractor or a new employee for long-term coverage.

Maintain Records

At the end of the year, use the deceased employee's Form W-2 to report all wages and deductions that were distributed before their death. The IRS advises that employers use the Form 1099-MISC to report final payments issues after the employee passed away.

Your state labor department can provide you with details on the appropriate withholding procedures. Typically, any compensation paid to the beneficiary or estate in the calendar year following the employee's death is not subject to Social Security and Medicare taxes.

Visit the Tax Help and Training guide at Business.gov for assistance.