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What to Do When an Employee Dies
When an employee passes away, you'll need to handle their final payroll correctly and notify HMRC through your payroll software. This is a sensitive situation that requires careful attention to ensure the deceased's estate receives what they're owed and your records are properly updated. The...
When an employee passes away, you'll need to handle their final payroll correctly and notify HMRC through your payroll software. This is a sensitive situation that requires careful attention to ensure the deceased's estate receives what they're owed and your records are properly updated. The process differs slightly depending on whether the employee died while still employed or you're dealing with a company pension.
Making final payments to the estate
You must pay all outstanding wages or salary owed when an employee dies. This includes any accrued holiday pay, unpaid wages, or other amounts due. These payments should be made to the personal representative or executor of the deceased's estate—the person legally responsible for handling their affairs.
Do not issue a P45 when an employee dies. Instead, you'll report their death through your regular payroll software.
Reporting the death through payroll
When you process your next Full Payment Submission (FPS)—the regular report you send to HMRC each time you pay employees—enter the date the employee died in the 'Date of leaving' field.
Calculate tax on their final payment using their existing tax code, exactly as you would have done if they were still alive. However, you must use National Insurance category letter X, which means you do not deduct any National Insurance contributions from the payment.
If you need to make a late payment
Sometimes you may need to make an additional payment after you've already reported the death to HMRC. This might happen if you discover unpaid wages or other amounts owed after submitting the FPS with their date of leaving.
When making a late payment after reporting the death:
- Use tax code 0T on a 'week 1' or 'month 1' basis
- Include the original date of leaving (the date they died)
- Select 'Yes' in the 'Payment after leaving indicator' field
- Choose 'H - Correction to an earlier submission' in the 'Late payment reason' field
- Update the year-to-date figures to include this additional payment, or if it's a new tax year, ensure the year-to-date figures only show the additional payment
Correcting mistakes
If you discover you didn't report an employee's death in the correct FPS, you should follow the standard HMRC guidance for when an employee leaves. This allows you to correct the record and ensure the information HMRC holds is accurate.
Dealing with company pension payments
The process is similar if someone who receives a company pension from you dies. You must make all outstanding pension payments to their estate.
Enter the date they died in the 'Date of leaving' field in your next FPS and calculate their final pension payment.
Tax treatment for final pension payments
The tax code you use depends on timing:
If you're paying in the same tax year they died: Use their existing tax code for the final payment.
If it's a new tax year and you haven't yet reported their death: Use their new tax code for the current tax year.
If it's a new tax year and you've already reported their death: Use tax code 0T on a 'week 1' or 'month 1' basis and select 'Yes' in the 'Payment after leaving indicator' field.
Handling overpayments
You may sometimes pay a pension after someone has died, particularly if you weren't notified of the death promptly. When this happens, you should request the overpayment back from the deceased's executor.
Report the pensioner's date of leaving (the date they died) on your next FPS and select 'H - Correction to an earlier submission' in the 'Late reporting reason' field. If you don't know the exact date of death, use the date of their final pension payment as their date of leaving.
If you successfully recover the overpayment from the estate, amend the year-to-date figures in your payroll software to reflect this.
If the death occurred in a previous tax year
If you only discover a pensioner died after the tax year has ended:
- Enter '0.00' in the year-to-date figures for pay and tax in your FPS for the current tax year
- Send either an Earlier Year Update (EYU) or an FPS with the correct year-to-date figures for the previous tax year
This ensures HMRC's records accurately reflect what was actually paid during each tax year.
Reporting workplace deaths
If an employee dies at work or from a work-related incident (including when working off-site), you have additional legal obligations beyond payroll. You must report the death to both the police and the Health and Safety Executive (HSE) on 0845 300 9923, available Monday to Friday, 8:30am to 5pm. In Northern Ireland, report to the Health and Safety Executive for Northern Ireland (HSENI) instead.
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
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