Let’s face it—no one wants to think about what happens when an employee dies. It’s a deeply human moment, and yet, somewhere between the condolences and the memorial service, someone in Human Resources is quietly asking: “So… what do we do about their final pay?”
It’s not cold-hearted—it’s compliance. When an employee passes away, employers are suddenly faced with a tangle of legal, tax, and benefits questions that don’t come up in your average HR handbook. Who gets the final wages? What about that bonus they were about to earn? Can we offer extra support to the family without triggering a tax nightmare?
This article is here to help you navigate those questions with clarity, compassion, and just enough levity to keep you from crying over these potentially complex issues. We’ll walk through the general rules, the risks, and the right way to honor your employee’s legacy—and hopefully without running afoul of state laws or those pesky tax entities (think IRS, state income tax and probate laws).[1]
Let’s get into it.
Final Wages: Payroll’s Most Morbid Deadline (now with Probate!)
When an employee passes away, employers often want to act quickly and compassionately. But before you cut that final paycheck, take a breath—because generally, final wages are considered the property of the deceased employee’s estate, not something you can simply hand over to the nearest grieving relative.
Who Gets Paid? (Hint: It’s Not Always the Spouse)
Unless your state has a statute that allows for direct payment to a surviving spouse or beneficiary, final wages are subject to general estate or probate laws and must be paid to the employee’s estate. That means:
- You may need to wait for a court-appointed personal representative to step forward.
- You’ll likely need a death certificate and legal documentation (e.g., letters testamentary or a small estate affidavit).
- The payee on the check will depend on the legal documents provided and may be the Estate of the Deceased, one or more individuals, or the trustee(s) of a trust.
- Risks? If you pay the wrong person, you could face a claim from the estate, beneficiaries, or even creditors at some point later that the funds were given to the wrong person.
Approximately 35 states have statutes that allow private employers to pay some or all of the final wage payments directly to a surviving spouse or other beneficiary. Some states (like California) allow for simplified procedures—for example, paying wages up to a certain amount directly to a surviving spouse or next of kin outside of full probate.[2] But these exceptions are state-specific. Bottom line – it would be wise to know this ahead of time because the process for private employers to pay out final wages is governed by state-specific laws.
Common requirements in these statutes include verifying the claimant’s entitlement through an affidavit or declaration, adhering to an order of preference among heirs (e.g., spouse, children, parents), and observing payment limits that vary by state. (For example, Colorado imposes no such limit, but Rhode Island limits the amount the employer can pay to the beneficiary to $150.00!) Many states impose caps on the amount of final wages that can be paid without formal estate administration, and employers are generally protected from liability if payments are made in compliance with these laws. Finally, some states may have a “small estate” exception to probate, thus allowing the payment of the final wages if the total estate value is within the specified amounts.
Timing: It Depends on the State
While many states require prompt payment of final wages after separation, the rules change when the separation is due to death. Some states impose specific deadlines if they allow for payment to the surviving spouse, estate or authorized recipient, while others defer to probate timelines. Specified timeframes range from 30 to 45 days in some states.
Pro tip: Don’t assume your usual final paycheck rules apply. Check your state’s labor code and/or probate statutes—or better yet, consult counsel.
Avoid These Common Mistakes
- Automated Payment in Accordance with Old Direct Deposit Information: Banks may freeze accounts upon death, or someone may have access to the account who is not entitled to the funds.
- Paying a family member without legal authority: Even if they mean well, they may not be the rightful recipient.
- Skipping tax considerations: Post-death wages are still taxable income, but how you report them (W-2 vs. 1099-MISC) depends on timing. The IRS has very specific rules concerning such payments. (see IRS Publication 15 (Circular E), Employer’s Tax Guide.)
Pro Tip:
If you’re tempted to just direct deposit the final wages and call it a day, pause. Once an employee dies, their bank account may be frozen. A paper check made payable to the correct legal recipient is often the safer route.
Bonuses and Commissions: The Ghosts of Compensation Past
Ah, bonuses and commissions—the glittering promise of future reward. But what happens when the employee who earned that bonus or commission is no longer around to collect it? Is this part of “final wages”? Can you still pay it? Should you? And who gets it?
Earned vs. Discretionary: The Great Divide
The key question is whether the bonus or commission was earned before the employee’s death, often governed by a written plan or policy. If it was, it generally must be paid along with the final wages (or at the later time specified by the plan or policy)—yes, even if the employee didn’t live to see the check hit their account.
Bonuses: It Pays (Pun Intended) to Have a Plan
Commissions: The Plot Thickens
As a first step for bonuses, check the written plan document or policy. It will often specify how the bonus payment should be handled upon an employee’s death. For example, is the company still obligated to pay the bonus even if the employee passed before the end of the performance period or the bonus payment date? Who is entitled to the bonus upon the employee’s death? Is payment accelerated or made at the same time as all other bonus payments? How is the bonus calculated if the employees passes away in the middle of the performance period? A well-drafted bonus plan or policy will provide answers to all of the questions. And if there is no plan or policy (or the plan or policy is silent on these questions), we generally recommend deferring to applicable state wage and hour laws based on the state where the employee performed the work.
Commissions often fall into a gray area. If the sale closed and the commission was due before death, it’s typically owed and would also be part of the final wages. But if the deal was still in the pipeline, or the commission required continued employment, you may have more flexibility.
Tip: Check your commission agreements. If they say, “must be employed at time of payout,” courts may still find that language unenforceable if the employee died after earning the commission. (Because, well, they didn’t exactly quit.) Better yet, consider addressing this issue in the Plan itself to avoid any ambiguity!
Who Gets the Bonus or Commission?
Just like final wages, these payments don’t go to the office snack fund. They’re typically treated as part of the final wages and follow the same rules we discussed above.
Avoid the “Surprise Bonus” Trap
If you’re feeling generous and want to pay a bonus posthumously that wasn’t earned or promised, that’s lovely—but it may be treated as a gift or death benefit, with different tax consequences. (Spoiler: the IRS doesn’t do sentimentality.)
This blog is part one of a two-part series. Stay tuned for Part 2, coming Thursday, August 21st.
[1] This Article summarizes the requirements for private employers. Public employers are often subject to different rules.
[2] Check out Seyfarth’s March 16, 2026, California Peculiarities Blog that focused on obligations for final wages to the surviving spouse after death for California employees: Till Death Do You Part—Wages Of The Dearly Departed.