How to process final pay for a deceased employee in QuickBooks Online Payroll

In the unfortunate event of an employee's death, you must process any outstanding pay due and record it in QuickBooks Online. Here's how to process final pay with National Insurance Contributions (NIC), tax and student loans.

You must put the date they died into the ‘Date of leaving’ field in their next Full Payment Submission (FPS), and deduct tax using the deceased employee's existing tax code. Use category letter X so that they do not deduct National Insurance and do not produce a P45.

Treatment of NIC

If an employee dies, different NIC treatment applies. No NIC contributions should be deducted from the employee should a payment be made to them after the date of death.

NIC contributions also cease for the employer. For example, if date of death is recorded as 12/04/2012 and payment is made for the month on 26/04/2012, then no NIC should be deducted from that or any subsequent payment made in respect of the employee.

Treatment of tax

Tax should continue to be deducted as normal, however once the P45 has been generated, any subsequent payments should attract tax using an 0T tax code on a non-cumulative basis (for example, week 1/ month 1 basis).

Treatment of student loan

HMRC ruling states that no student loan deductions are to be made from any payments after an employee dies. This applies even though the payment may relate to a period prior to death for example unpaid wages.

To mark an employee as deceased, select the employee and mark the employee as Resigned.