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Texas Payroll/Personnel Resource

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General Provisions
Payments to Estates of Deceased Employees

Background

Customarily, state agencies and institutions of higher education issue final payments of compensation for a deceased state employee to an estate of the deceased. However, in rare circumstances these final payments may be issued to an authorized spouse. A spouse is authorized only if:

  • A sworn written statement that is notarized (an affidavit) is furnished to the paying agency.
    – and –
  • The affidavit states:
    • The person who swears under oath (the affiant) is the employee’s surviving spouse.
      – and –
    • No person has qualified as an executor of the will or is an administrator of the employee’s estate.

Agencies are not required to determine if an affidavit is truthful. The transaction is made in good faith. The person who accepts payment must answer to any person having prior right to the disbursement.

As in any legal matter, payroll officers should consult with their agency’s general counsel to resolve legal questions related to disposition of final payments of compensation for deceased state employees.

Responsibility for Making the Payment

The state agency or institution of higher education that employed a state employee immediately before the employee’s death is responsible for making the lump-sum payment of vacation and sick leave to the employee’s estate or spouse.

The responsibility exists even if the employee, immediately before death, was employed by the agency in a position that did not accrue vacation leave, sick leave, or either.

The payment must be charged to the appropriation year in which the state employee’s death occurred.

Entitlement to Payment

If the deceased employee completed at least six months of continuous state employment, the estate or spouse of a deceased state employee is entitled to:

  • The balance of the deceased employee’s accumulated vacation leave.
    – and –
  • One-half of the employee’s sick leave (up to 336 hours).

The estate or spouse of the deceased state employee who completed less than six months of continuous service may be paid other types of compensation, but will not be paid for any accumulated leave.

Special Tax Considerations

When a state employee dies, the sick leave portion of a lump-sum payment of accrued vacation and sick leave is not subject to:

  • Federal income tax (FIT) withholding.
    – or –
  • Withholding under the Federal Insurance Contributions Act (FICA).

The vacation leave portion of a lump-sum payment of accrued vacation leave and sick leave at the death of a state employee is not subject to FIT withholding, but is subject to withholding under FICA if paid in the same year as death.

If the payment occurs after the calendar year of the employee’s death, the lump-sum payment is not subject to FIT or FICA.

Refer to Internal Revenue Service Form W-2 Instructions PDF for tax information.

Deduction Considerations

A lump-sum payment for accrued vacation and sick leave at the death of a state employee is not subject to deductions for employee retirement contributions to the:

  • Optional Retirement Program.
  • Teacher Retirement System.
    – or –
  • Employees Retirement System.

Examples: Computation of Hours of Leave Time

The balance of the deceased state employee’s accrued vacation time must be allocated over the workdays following the effective date and time of the employee’s death until the total accrued vacation time is completely allocated. The sick leave to be paid is then allocated over the workdays following the allocation of the vacation time.

If a deceased employee worked at least 40 hours a week, each workday will consist of eight hours.

If the employee worked less than 40 hours a week during their normally scheduled workweek, their hours are divided by five days to compute the number of hours in each workday.

Example:

  • A deceased employee worked 25 hours a week.
  • Twenty-five hours divided by five days equals five hours per workday.

State employees who were scheduled to work 40-hour workweeks have eight hours added to their leave balance for each state or national holiday occurring during their balance allocation period.

Employees who work less than a 40-hour workweek also collect holiday hours. Their state and national holiday hours are equal to the product of eight hours and the percentage of the 40 hours normally scheduled in their workweek.

Example:

  • The deceased employee had one national holiday during their balance allocation period. The employee normally worked 25 hours a week.
  • Twenty-five hours divided by 40 hours = .625 percent of a workweek.
  • Eight holiday hours multiplied by .625 = five holiday hours.
  • Five hours will be added to the leave balance.

Computation of the Applicable Hourly Rate

When computing a lump-sum payment to the estate of a deceased state employee, the applicable hourly rate is the employee’s rate of compensation on the date of death.

A state employee’s compensation includes:

  • Base pay.
    – and –
  • Emoluments or stipends provided as a salary supplement.

Compensation does not include:

  • Longevity pay.
  • Hazardous duty pay.
  • Special items of compensation (such as housing, utilities, clothing and cleaning unless provided in lieu of base pay).

Deceased state employees who were not hourly employees immediately before their death must have their compensation expressed as an hourly rate.

The hourly rate of compensation for a particular month is calculated by dividing the rate of compensation by the standard number of working hours in a month.

As the standard number of working hours in a month varies from month to month, this should be considered when calculating the hourly rate of compensation.

Deceased state employees who worked less than 12 months but opted to be paid over a 12-month period must have their applicable hourly rate based on the amount of compensation earned each month the employee worked.

Example: Calculating the Lump-Sum Payment

  • Death Date: 03/09/22 (worked six days and one holiday in March)
  • Base Salary: $4,050.00/month
  • Annual Leave Balance: 215 hours
  • Sick Leave Balance: 80 hours
  • Total Standard Working Days in March: 23
  • Total Working Hours in March: 184
  • March Holidays in Calculation: 1 (3/2/2022)
  • Total Standard Working Days in April: 22
  • Total Hours in April: 176 hours
  • April Holidays in Calculation: 1 (4/21/2022)
  1. Calculate vacation hours and applicable hourly rate for each month
    • March: $4050/184 = $22.01087/per hour
    • April: $4050/176 = $23.01136/per hour
  2. Calculate the lump-sum gross of vacation leave for each month
    • March: $22.01087 x 128 (16 days in March following death = 16 days x 8 hrs = 128 hrs) = $2,817.39
    • April: $23.01136 x 87 (annual leave balance minus hours in March = 215 - 128 = 87) = $2,001.99
  3. Add March and April gross totals for total vacation leave
    • $2,817.39 (March) + $2,001.99 (April) = $4,819.38
  4. Calculate the lump-sum gross of sick leave
    • 80 sick leave hours/2 = 40 sick leave hours

      Note: Sick leave is taken after all vacation leave is exhausted and the hourly rate will be for the month the sick leave will occur.

    • April: 40 sick leave hours x $23.01136 = $920.45
  5. Calculate the holiday hours with the April sick leave
    • April: Eight holiday hours x $23.01136 = $184.09
    • April: $184.09 + $920.45 = $1,104.55 Total Sick
  6. Calculate the lump-sum gross payment
    • $4,819.38 (vacation) + $1,104.55 (sick) = $5,923.93 Total Gross

Sources

Texas Estates Code Section 453.004; Administrative Rule 5.44; Texas Government Code Section 661.031–.038; IRS Publication 15 (Circular E) PDF, Employee’s Tax Guide; IRS Publication 15-A PDF, Employer’s Supplemental Tax Guide.