No one wants to think about it, but the question often arises: What happens when an employee dies?
It is emotional, personal, and often unexpected. And yet, once condolences are offered and arrangements are underway, someone in HR is quietly asking this very question:
What are we legally required to do next?
Final pay, bonuses, commissions, taxes, and benefits. These are not topics most HR handbooks prepare you for, but they matter. Getting them wrong can create legal exposure. Getting them right shows professionalism, care, and respect for the employee and their family.
Here’s what employers should know.
Who Gets the Final Paycheck?
This is usually the first question, and it’s also where many employers make mistakes.
In most cases, final wages belong to the employee’s estate, not to a spouse or family member automatically. That means employers generally cannot hand over a check just because someone is the next of kin.
So, what does that look like in practice?
- Payment may need to be made to the employee’s estate
- Employers may need a death certificate and legal documentation
- A court-appointed personal representative may need to be involved
Some states allow employers to pay a limited amount of final wages directly to a surviving spouse or designated beneficiary without full probate. These rules vary by state and often include dollar limits, affidavits, and an order of priority among heirs.
The key takeaway: state law controls the process, and it varies from state to state.
Paying the wrong person, even with the best intentions, can expose an employer to later claims from the estate or other beneficiaries.
How Quickly Must Final Wages Be Paid?
Another common question:
Do normal final paycheck deadlines apply when an employee dies?
Not always.
Many states that require immediate or prompt final pay after termination treat death differently. Some provide specific timelines. Others defer to probate processes. Timeframes can range from a few weeks to longer, depending on state law and documentation.
Employers should not assume their standard termination procedures apply in these situations.
What Should Employers Avoid Doing?
In emotionally charged situations, employers often want to act quickly. A few rushed actions, however, can cause problems later:
- Automatically issuing direct deposit (accounts are often frozen after death)
- Paying a family member without legal authority
- Overlooking tax reporting rules for post-death wages
In many cases, issuing a paper check to the legally authorized recipient is the safest approach.
What About Bonuses and Commissions?
This is where things often get complicated.
The critical question is simple:
Was the bonus or commission earned before the employee’s death?
If the answer is yes, it is generally payable, even if the payment date has not yet arrived.
Employers should carefully review written bonus plans and commission agreements. These documents often spell out what happens in the event of death, including eligibility, timing, and calculation.
Commissions can be especially tricky. If a sale closed and the commission was earned, it is usually owed. If the deal was still pending or required continued employment, state wage laws and contract language will matter.
One important caution: payments made out of goodwill, rather than out of obligation, may be treated as gifts or death benefits and may carry different tax consequences.
Handling a Difficult Moment the Right Way
When an employee passes away, employers are navigating more than payroll. They are navigating trust.
Taking the time to understand state laws, follow proper procedures, and communicate clearly helps protect the organization while honoring the employee’s legacy.
This is not about being clinical. It is about being prepared.
When questions arise, working with experienced HR, legal, and benefits advisors can help ensure everything is handled with care, compliance, and professionalism.
