Things are always happening to the people at work over which you have no control. An employee may have a new baby or adopt one. Or an employee may die. These personal life cycle events for employees trigger a slew of responsibilities for employers.
Large companies have HR departments that handle actions following a life cycle event. Small business owners may work with outside payroll companies that do HR duties; otherwise they have to manage things on their own.
The following is a survey of the actions you could or should consider to honor your staff and comply with the law.
Important payroll actions to consider
Birth-related obligations
The birth or adoption of a child is an exciting and often challenging time for an employee. An employer’s support and understanding can go a long way in engendering employee loyalty.
Some actions are required by law, but others are within your discretion.
Family and medical leave.
Federal law mandates that businesses with 50 employees give up to 12 weeks of unpaid leave for the birth or adoption of a child. More than a dozen states and DC mandate some paid leave. Employers may qualify for a federal tax credit when they pay for such leave. Whether you are required to provide leave—paid or unpaid—you might consider doing so to show your support and understanding.
New Form W-4.
An employee who has a new dependent may want to change withholding to reflect this change in status.
Changes in health coverage.
If you have a group health plan in which the employee is enrolled, the new dependent can be added for coverage. There is an open enrollment period (typically 30 days) from the date of birth or adoption to add the child; benefits are retroactive to the qualifying life event. Also, if an employee currently has single coverage, a change to family coverage is possible.
Changes in health and/or dependent care FSAs.
Like group health coverage, a new dependent can mean an employer wants to increase elective contributions to flexible spending accounts (FSAs). Again, the employee must request the change within the period set by the plan (typically 30 days from the date of birth or adoption, but 60 days in some companies).
Penalty-free distributions from retirement plans.
Qualified retirement plans, such as 401(k)s and SEPs, can permit employees under age 59 ½ to take penalty-free distributions up to $5,000 for expenses related to the birth or adoption of a child. (The distribution is taxable.) The distributed funds can be recontributed within 3 years (and an amended return filed to recoup the taxes that had been paid on the distribution). If you have a company plan that permits these distributions, share the information.
Time for expressing breast milk.
The federal PUMP Act requires employers to give reasonable break time for an employee to express breast milk for up to one year after a child’s birth and to provide a private place (not a bathroom) to do it. This can be unpaid time, and small businesses (fewer than 50 employees) are exempt if compliance would cause an undue hardship—but it’s a good idea to find a way to do it.
Death of an employee
When an employee dies, there are a number of things you must or could do to help a surviving spouse, the employee’s family, or the employee’s estate. Obviously, you want to express condolences and notify the rest of your staff (perhaps give time off for them to attend a funeral or other services).
Depending on the employee’s position, you may also want to notify customers, clients, or patients, as well as suppliers. And you need to reassign the employee’s duties or hire a replacement as soon as possible.
But there are other things to consider:
Final paycheck.
Issue a final paycheck to the appropriate party, typically the estate or a surviving family member (check state law on this). Be sure the final paycheck includes not only wages earned, but also any accrued vacation or PTO (again check state law).
Benefits.
Run through the list of employee benefits you offer and determine which applies to the deceased employee:
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- Group health insurance. Notify the insurer to terminate coverage. And if you are subject to COBRA (you have 20 or more employees), tell the surviving spouse and dependents about their right to continuation coverage.
- FSAs. If there are funds remaining in an employee’s account, typically funds revert to the employer. But expenses incurred before death may be disbursed.
- Retirement plans. The plan administrator should begin the process of handling beneficiary claims.
- Life insurance. If you have group-term life insurance for employees, collect a death certificate for the insurer. The insurer disburses the proceeds of the policy to the beneficiary.
Employment records.
Update your employment records to show termination as “deceased.” Notify your state unemployment agency that this person is no longer on the payroll. For workers’ compensation purposes, if the employee died in a work-related incident, notify your carrier immediately.
Final thought
“There is no cure for birth and death save to enjoy the interval.” ~ Author George Santayana
Recognize that birth and death trigger special actions by an employer. If you’re unclear about what to do, consult an expert (e.g., an employment law attorney; CPA).
Above all, keep the fact that these events are highly significant to the employee and family and should be treated accordingly.
Additional resources about payroll responsibilities can be found in this list of blogs.
