As the party signing the cheques, an employer sometimes has to deal with challenging circumstances.
Thankfully, one of these challenging circumstances is rare – dealing with the death of an employee. Outside of grieving, it is important to ask and consider: what obligations does an employer have when an employee dies to ensure that the deceased’s employment is wrapped up properly?
There are three major areas to consider in resolving the employment of a deceased employee:
- Whether the employer has any obligations to the employee due to the end of their employment under the Employment Standards Act, 2000 (the “ESA”) or at common law;
- What changes to payroll result from the employee’s death; and
- What documentation the employer needs to issue to the deceased employee.
Where an employee dies after receiving notice of the termination of their employment or in the course of employment through a workplace injury or illness, or an incident of workplace violence there are multiple additional statutory and legal obligations, none of which we will address here. If this happens, contact your employment law counsel, immediately.
Statutory and common law obligations
Employment ends at death. Normally, the end of employment creates statutory and possibly common law obligations on the part of the employer to the employee in terms of notice and severance – not where the end of employment is due to the employee’s death. The ESA and the common law both include rules to address what happens next.
Ontario Regulation 288/01 to the ESA indicates that where an employee’s employment is frustrated due to the employee’s death the employer does not owe the employee severance pay. Similarly, when an employee’s employment ends in the employee’s death there is no obligation to pay termination pay under the ESA.
Under the common law, “in the case of a contract for personal service, the death of either party puts an end to the contract unless there is a stipulation, express or implied, to the contrary”.
Changes to payroll obligations on death
Without there being obligations for termination pay, the question becomes what to do about paying out the employee’s final pay: to whom should any outstanding amount be directed, and what changes to deductions should be made?
The final paycheque(s) are to be made out to the estate of the deceased employee.
For nearly all deductions from the final pay periods, the dividing line for a change to deductions is the employee’s date of death. All outstanding earnings at the date of death are subject to normal deductions. Anything earned after the employee’s death (such as commissions from a sale that the employee worked on but closed post-death) is treated differently.
For Canada Pension Plan (“CPP”) contributions, deductions should be made as normal from all earnings unpaid at the time of death. The number of months up to and including the month of death should be used for prorating the maximum CPP contributions for the year. No CPP deductions should be made from money earned after the employee’s death.
No Employment Insurance contributions should be deducted from any money outstanding and unpaid at the time of the employee’s death; this same holds true for any money earned after the employee’s date of death.
For taxes, deductions are made as normal for all money earned by the employee and unpaid at the time of death. No deductions are made from money earned after the employee’s death.
Another significant consideration is what paperwork should be issued on behalf of the deceased employee.
The employer should issue the employee’s T4 in the employee’s name for the current year, which outlines all monies paid to the deceased employee’s estate. The funds paid as outlined above should coincide with the T4.
Also, as employment has ended, the employer must issue and file a Record of Employment in the deceased employee’s name. This should include code “K” and an explanation in Block 18 that employment has ended due to the death of the employee.
Finally, consider if the employee was receiving payments under the Workplace Safety and Insurance regime. The Workplace Safety and Insurance Act, 1997 includes a notification process as well as a process for continuing/ending payments under this regime if no estate exists.
There are multiple other obligations for an employer addressing the death of an employee, such as how to break the news, assisting with the grieving process, and memorializing the deceased employee’s contributions.
However, addressing the legal and payroll aspects of the situation cleanly and correctly will make these matters easier and more straightforward to deal with.
These issues can be complicated, and we remind everyone not to make decisions without getting proper advice; fixing a problem is almost inevitably more expensive than preventing one.
By Geoffrey Lowe
 Farrow v. Wilson (1869), (1868-69) L.R. 4 C.P. 744 (Eng. C.P.) [1861-73] All E.R. Rep. 846