Life inevitably ends in death, leaving behind grieving family and friends. Anyone who is in business long enough will have to address the issue of death. Whether it’s the death of a family member, death of a friend and death of a co-worker, companies need to have a plan in place for managing loss.

At a minimum, employers need to plan on a leave of absence for bereaved employees. The norm is 3 days of paid bereavement leave for an immediate family member. Immediate family member is typically defined as spouse, child, parent, sibling and corresponding “steps” and in-laws. Sometimes grandparents are also included in the definition of immediate family member. In today’s society, it makes sense for employers to also consider including domestic partners and/or same-sex spouses in this category. Many employers go a step further and grant 1 day of paid bereavement leave for an employee to attend the funeral of a close friend or relative who is less close, such as a cousin. Beyond that, employees are generally permitted to use any paid time off benefits that may be available to extend their bereavement leaves.

Some employers have policies or practices in place to send flowers and/or food to an employee when an immediate family member passes. Additionally, it is a good practice for the immediate supervisor to attend the service in support of the employee and as a representative of the company.

This guidance is fine to help our employees deal with loss of their loved one. However, what about the death of a coworker?

Losing a co-worker can devastate not only an entire department but an entire organization. Depending on the circumstances, an employer may want to consider bringing in grief counselors to help employees cope with the loss. A decision will need to be made with respect to whether the business will be able to allow all employees from a department or the company to attend their co-worker’s funeral. Will that time away from work be paid or unpaid?

Employees will also observe how the company helps the widow or widower left behind. Companies may contribute monies toward funeral expenses and may provide additional food for the reception after the funeral. It is expected that the company will help the beneficiaries process life insurance, 401(k) payouts, etc. so that those benefits are paid as quickly as possible.

The issue of the final paycheck, which would include final pay due as well as any vacation or PTO that would be paid out, can be a difficult one. If there is a spouse, it is okay for the company to give the check to the spouse; however, the ideal is to make the check payable to “The Estate of [Employee Name]” and allow the executor of the estate and/or probate court deal with it. This is especially true when two or more people claim they are the appropriate person to receive the final paycheck.

The IRS also has guidelines with respect to how taxes for a deceased employee’s wages are reported. In their instructions for Forms W-2/W-3, the IRS states:

Deceased employee's wages.    If an employee dies during the year, you must report the accrued wages, vacation pay, and other compensation paid after the date of death. Also report wages that were available to the employee while he or she was alive, regardless of whether they actually were in the possession of the employee, as well as any other regular wage payment, even if you may have to reissue the payment in the name of the estate or beneficiary.  If you made the payment after the employee's death but in the same year the employee died, you must withhold social security and Medicare taxes on the payment and report the payment on the employee's Form W-2 only as social security and Medicare wages to ensure proper social security and Medicare credit is received. On the employee's Form W-2, show the payment as social security wages (box 3) and Medicare wages and tips (box 5) and the social security and Medicare taxes withheld in boxes 4 and 6. Do not show the payment in box 1. If you made the payment after the year of death, do not report it on Form W-2, and do not withhold social security and Medicare taxes. Whether the payment is made in the year of death or after the year of death, you also must report it in box 3 of Form 1099-MISC, Miscellaneous Income, for the payment to the estate or beneficiary. Use the name and taxpayer identification number (TIN) of the payment recipient on Form 1099-MISC. However, if the payment is a re-issuance of wages that were constructively received by the deceased individual while he or she was still alive, do not report it on Form 1099-MISC.

Example. Before Employee A's death on June 15, 2015, A was employed by Employer X and received $10,000 in wages on which federal income tax of $1,500 was withheld. When A died, X owed A $2,000 in wages and $1,000 in accrued vacation pay. The total of $3,000 (less the social security and Medicare taxes withheld) was paid to A's estate on July 5, 2015. Because X made the payment during the year of death, X must withhold social security and Medicare taxes on the $3,000 payment and must complete Form W-2 as follows.

 

  • Box a – Employee A's SSN
  • Box e – Employee A's name
  • Box f – Employee A's address
  • Box 1 – 10000.00 (does not include the $3,000 accrued wages and vacation pay)
  • Box 2 – 1500.00
  • Box 3 – 13000.00 (includes the $3,000 accrued wages and vacation pay)
  • Box 4 – 806.00 (6.2% of the amount in box 3)
  • Box 5 – 13000.00 (includes the $3,000 accrued wages and vacation pay)
  • Box 6 – 188.50 (1.45% of the amount in box 5)

  

Employer X also must complete Form 1099-MISC as follows. 


  • Boxes for recipient’s name, address, and TIN—the estate's name, address, and TIN.
  • Box 3: 3000.00 (Even though amounts were withheld for social security and Medicare taxes, the gross amount is reported here.)

 

If Employer X made the payment after the year of death, the $3,000 would not be subject to social security and Medicare taxes and would not be shown on Form W-2. However, the employer would still file Form 1099-MISC.”

In the unfortunate circumstance that an employee died in a work-related incident, the company must notify OSHA of the work-related fatality within 8 hours of the incident.

Employers currently have two options for reporting these severe incidents to OSHA. They can call their nearest area office (see https://www.osha.gov/html/RAmap.html) during normal business hours or they can call the 24-hour OSHA hotline at 1-800-321-OSHA (1-800-321-6742).

Although death is an inevitable part of life, being prepared will enable the company to help its employees through the grieving process.

Contributed by Christine Crews, SPHR, SHRM-SCP is Vice President of Human Resource Services for the Employers Association Forum, Inc. (EAF). EAF is a non-profit corporate membership-based association dedicated to serving the business and HR communities with world-class HR tools, hotlines & legal compliance, news & trends, surveys & economic data, benefits & insurance, risk management, training & consulting, and leadership & organizational development. HCCMO members receive discounted rates on all EAF classroom training at EAF’s training center in Longwood. Click here for currently scheduled programs: http://www.eafinc.org/online_store/training/HCCMO/training_programs.pdf.

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