When an employee unexpectedly dies, the employer’s first instinct often is to take steps to assist his or her family, and to minimize any financial disruption associated with the death. While these goals are laudable, companies should be aware of state and federal requirements associated with such payments.  

Once it is aware of the employee’s death, the employer cannot simply pay the employee’s final wages to the account previously provided or make that payment directly to the deceased employee’s spouse or other relative. While state laws vary in terms of these requirements, in general the employer must pay such wages to the estate or designated beneficiary. The employer can ask the employee’s next of kin to have the estate representative contact the company and provide written notice of their authorization to receive the payment and directions for making such payment.

Depending on the timing of the death, tax rules governing payroll deductions may differ for a deceased employee. Employers should check with their tax professional before making the payment. Beyond payment of final wages, the employer will need to determine any life insurance and dependent COBRA rights that may apply to the estate or the deceased worker’s beneficiaries.

We have seen some cases where a well-intentioned employer directly provides these final wages to a spouse or other relative, and later faces claims from the estate that the payment was not made to an authorized beneficiary. Even with the stress and emotions that accompany an employee’s death, employers should take the time to gather information and make certain that they are providing any pay or benefits to the authorized person or entity.

For more information, please contact me or your regular Parker Poe contact. Click here to subscribe to our latest alerts and insights.