Deceased Employee Payout Process for Payroll
Purpose: To provide detailed instructions within the Payroll for North America module for accurate payment to the deceased employee's beneficiary or estate. *Information provided in this document is based on instructions from The Office of Financial Management document "Indebtedness of State of Washington to Deceased Employees Procedures on How to File Claims".
- Follow standard Termination process for terminating Job Data using the following criteria:
- Action = Termination
- Reason = Death
- HR Status changes to Inactive
- Payroll Status changes to Deceased
- Follow standard Termination process for terminating Base Benefits
- Follow standard Termination process for terminating Absence Management
- Follow standard Termination process for terminating Time and Labor
- Review the below information carefully and then make the appropriate changes within the Payroll module to ensure accurate final payment:
Any payroll payments made to a deceased employee (in the calendar year of death as well as future calendar years) are not subject to Federal income tax withholding.
There are two steps needed to address this requirement:
- Change employee tax status to "No taxable gross, no tax taken"
- After payroll is confirm, change the employee tax status back to what it was prior to your change above.
This is required for a W2 to generate correctly for the employee.
To change the employee federal tax withholding status for this requirement:
Navigation: Main Menu > Payroll for North America > Employee Pay Data USA > Tax Information > Update Employee Tax Data
- Before making the tax status change to "No taxable gross, no tax taken", copy or note the current tax status screen (to be used after payroll is confirmed to put the tax status back to the original status for W2 purposes).
NOTE: After the payroll is completed, change the federal tax withholding back to its original status
With the exception of sick leave buyouts, all wage payments (pay, overtime, comp time, annual leave, etc.) to a deceased employee are subject to social security and Medicare taxes if payment is made in the calendar year of death (excluding payments to employees who have reached their social security maximum).
If payment is made in the calendar year subsequent to the date of death, the payment is not subject to social security or Medicare withholding.
There are 2 steps needed to address this requirement:
Change employee active job record(s) to FICA Status = Exempt
- After payroll is confirmed, change the employee active job record(s) back to what it was prior to your change above. This is required for a W2 to generate correctly for the employee.
- To change the employee FICA status for this requirement:
Navigation: Main Menu > Workforce Administration > Job Information > Job Data
- Add a row in the employee job record Work Location tab by clicking on the plus sign (+).
- Go to the Payroll tab and change the FICA Status to "Exempt".
NOTE: After payroll is confirmed, change the employee active job record(s) back to its original status.
The earning period being processed is not relevant - only the actual pay date.
Sick leave buyouts made to deceased employee’s survivors are exempt from social security and Medicare taxes.
- Use the Sick Leave earn code of LPN: Sick Leave Payoff-no OASI/Medicare on the payline to address this requirement.
- After a pay calc has been completed, validate your entries on the paycheck for the deceased employee. If all is correct, note the Net Pay amount of the payment and then go back to the payline and enter a One Time Deduction to the deduction code: 000038 "Deceased Employee Cashout". This prevents the system from generating a paycheck for the deceased employee and sends the net pay for deduction code 000038 to AP for payment.
- Run another pay calc to confirm a net pay of 0.00 for this employee.
- When it's time to generate the payment to the required payee (estate, attorney, etc.) create a manual invoice for AP with the following information:
- deduction code 000038
- amount to be paid
- name of the payee
- total gross amount of the pay for the deceased employee for 1099 purposes
- sample voucher
- Click on link for more information on paying deceased employees - Deceased Employee Procedures