Seven Crucial Tax and Other Issues to Address When an Employee Dies
“Employees are the key to your success… Treat them well!” (Ron Kaufman)
The death of an employee can be a difficult situation in any company, but particularly so in smaller businesses where employees work more closely together and often consider each other more than just co-workers.
In addition to handling the emotional aspect of such an event, companies must also keep the business running and take care of various compliance and tax issues.
Here are seven crucial issues to address swiftly after the death of an employee.
- Contact with the employee’s family
Obtain the name and contact details of a person from the deceased’s family with whom the company can communicate about a range of matters, including funeral details, collecting company property such as keys, equipment, (company cars, computers and the like) and credit cards, finalising employee benefits procedures, and the return of the deceased’s personal belongings.
It is also helpful to have the details of the executor of the deceased employee’s estate, who is also the ‘representative taxpayer’ for the deceased and responsible for finalising the deceased’s financial and tax affairs.
- Inform employees and establish internal processes
Notify other employees with respect, tact and care, providing as much information as possible. Nominate a company representative to answer employees’ questions; to accept flowers, communications and donations on behalf of the deceased’s family; and to make appropriate plans for memorials, tributes or gestures.
Realise that some people are better able to deal with such an event than others. Encourage employees to seek the help of lay therapists or religious advisors, and to provide mutual support to each other. Also consider arranging grief counselling and providing time off as needed, as well as for attending the funeral, preferably on a paid basis.
- Keep the business running
Update business roles and functions and reassign space and equipment to reflect the employee’s death in a respectful and compassionate manner.
To minimise disruption to the business, assign the deceased’s tasks, functions and responsibilities to other team members, and redirect phone, voicemail, email and mail communications as soon as possible. Collect company property and address security issues as per the company’s established termination procedures.
Inform clients, suppliers and other stakeholders who are affected of the change, while beginning the process of finding a suitable replacement.
Compensate for those employees who find it difficult to focus or make more mistakes, especially where this presents a safety issue, for example, in manufacturing or production environments.
- Calculate the final remuneration and benefits
In calculating the deceased employee’s final renumeration, the normal procedures for terminating employment must be followed: all hours worked until the date of death must be compensated, any outstanding leave must be paid out and, if the employee had any savings or loans with the company, these need to be finalised. Depending on the circumstances, payment will be made to the executor of the deceased estate, to the family or to a beneficiary.
At the same time, finalise employment benefits, such as medical aid and pension or provident fund membership, ensuring that all compliance issues are promptly attended to, so the family does not experience delays caused by the company when claiming benefits.
- Take care of tax issues
Whether the deceased was registered with SARS or not, and whether there is estate duty payable or not, SARS must be notified of the death of the person. This must be done by the executor of the deceased employee’s estate or by a tax practitioner acting on behalf of the deceased or the company.
The employer must provide the executor acting as the representative taxpayer of the deceased employee with the employees’ tax certificate within 14 days after the employee passed away. The provisions that state that employees’ tax certificates may not be delivered until the EMP501 reconciliation has been submitted does not apply.
Once the deceased employee has been coded as such by SARS, all outstanding tax returns should be submitted up to the date of death by the executor of the deceased’s estate. This applies to all tax types – income tax, VAT, PAYE, SDL, UIF and estate duty. As soon as all the tax liabilities have been paid in full, a Deceased Estate Compliance (DEC) letter is issued for all taxes except estate duty and an ED clearance letter for estate duty. Any refund due will only be released if all other taxes are up to date, all accounts have zero balances and all outstanding returns have been submitted and processed.
- Take care of UIF matters
Following the death of an employee who contributed to the Unemployment Insurance Fund (UIF), the dependants – a spouse or life partner, children under the age of 21 or a guardian of dependent children – can claim benefits from the UIF. The death benefit is the amount that the employee could have claimed if he/she was unemployed and it is paid out in one payment.
The dependants must apply within six months of the date of death by going to a Labour Centre to complete and submit Form UF126 (for a spouse or life partner) or Form UF127 (for a child).
The dependants will also need the following from the deceased’s employer:
- Copies of the deceased’s last six payslips;
- The employer’s details on form UI19; and
- A service certificate from the employer.
They will then receive another document, Form UF128, which needs to be filled in by the deceased’s last employer and then submitted at the Labour Centre.
- Take care of Compensation Fund issues
The surviving spouse or dependants of a deceased employee may be able to claim from the Compensation Fund if the employee died while working or as a result of a work-related accident, injury or disease. The Compensation Fund covers most employees.
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By law, anyone who employs one or more part- or full-time workers must register with the Compensation Fund and pay annual assessment fees, based on the employee’s earnings and the risks of the type of work. Workmen’s compensation is a no-fault system, which means there is no need to prove that an employer was at fault. The compensation awarded does not form part of the deceased employee’s estate and can also not be attached to satisfy a debt.
Assisting the deceased’s family in these matters reflects well on the reputation on the company/employer.