9.2 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".

Audience:  Payroll Administrators.

Deceased Employee Payout Process

Workforce Administration

  1. 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
  2. Follow standard Termination process for terminating Base Benefits.
  3. Follow standard Termination process for terminating Absence Management.
  4. Follow standard Termination process for terminating Time and Labor.
  5. 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 confirmed, 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.
  1. The next section demonstrates how to change the employee federal tax withholding status for this requirement.

Update Employee Tax Data

Navigation:  NavBar > Navigator > Payroll for North America > Employee Pay Data USA > Tax Information > Update Employee Tax Data

  1. The Update Employee Tax Data Search page displays.
  2. Enter the Empl ID.
  3. Select the Search button.
Update Employee Tax Data search page
  1. The Update Employee Tax Data page displays.
  2. 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).
Special Withholding Tax Status before
  1. In the Special Withholding Tax Status field, select No taxable gross, no tax taken from the drop-down menu.
  2. Select the Save button.
special withholding tax status field
  1. After the payroll is completed, navigate back to this page and 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.  This is required for a W2 to generate correctly for the employee.
  1. The next section demonstrates how to change the FICA status for this requirement.

FICA

Navigation:  NavBar > Navigator > Workforce Administration > Job Information > Job Data

  1. The Job Data page search page displays.
  2. Enter the Empl ID.
  3. Select the Search button.
Job Data search page
  1. The Job Data page displays.
  2. From the Work Location tab, Add a New Row in the employee job record by selecting on the plus sign [+] in the Work Location Details section.
Job Data page
  1. Select the Payroll tab.
  2. Change the FICA Status to "Exempt".
  3. Select the Save button.
Payroll tab exempt status change
  1. After the payroll is completed, navigate back to this page and change the FICA Status 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.

  1. The next section demonstrates how to change the Sick Leave earn code for this requirement.

Sick Leave Buyout

Navigation:  NavBar > Navigator > Payroll for North America > Employee Pay Data USA > Update Paysheets > By Payline

  1. The By Payline search page displays.
  2. Enter the Search Criteria.
By Payline
  1. The By Payline page displays.
  2. On the Payline tab, in the Other Earnings section, select LPN in the Code field.
  3. Select the Save button.
By Payline page

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.

  1. Select the One-Time Deductions tab.
  2. In the One-Time Deduction Data Override section, enter the Deduction Code:  000038.
  3. Select the Save button.
One-Time Deductions tab

Final Payroll Steps

  1. Run another pay calc to confirm a net pay of 0.00 for this employee.
  2. 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
  1. The deceased employee payout process for payroll is now complete.
  2. End of procedure.

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