Unpaid wages, bonuses and death in service: what an employer owes (UK)
18 August 2026 · Inherit Vault
A death in service pay-out is often the biggest single sum a family receives. It can reach them in weeks, rather than the months probate takes. It also reaches them through a completely separate door from the rest of the estate, which is why it gets overlooked.
The contract ends, the money owed doesn't
Employment ends automatically on death. The employer still owes everything earned up to that point: outstanding salary, accrued holiday that was never taken, and any expenses submitted or owed. That money belongs to the estate, and it's paid without National Insurance being deducted, with the employer reporting it to HMRC in the usual way. Payroll departments deal with this rarely. A polite written request listing exactly what's owed moves faster than waiting for them to work it out.
Death in service usually sits outside the estate
Most schemes are group life policies held under trust, commonly worth two to four times salary. Because the money is held on trust, the trustees decide who receives it, which means it doesn't need probate and normally isn't caught by inheritance tax. What guides that decision is the expression of wish form, sometimes called a nomination. It isn't legally binding, but trustees follow it in the vast majority of cases. It's also the form people fill in on their first day and never look at again, which is how ex-partners end up nominated years after a divorce.
Pension death benefits work the same way, for now
Lump sums from a workplace pension are usually discretionary too, and paid outside the estate. That's changing. From April 2027 unused pension funds are due to come within the scope of inheritance tax, which changes how much of a pension actually reaches the family. If a pension is doing heavy lifting in someone's plan, it's worth a look before then rather than after.
Bonuses are the argument
Most bonus schemes require the employee to be employed on the payment date, which by definition can't happen. Whether anything is paid depends on the scheme rules and, frankly, on the employer. Ask for a copy of the rules rather than accepting a verbal no. Company benefits are worth asking about too, since some employers continue private medical cover for a family for a period after a death.
The through-line here is that almost all of it depends on one form nobody remembers filling in, and a scheme nobody in the family knows exists. Both fit on one line of a written record, next to the employer's name.
Leave your family a map, not a mystery.
Inherit Vault is a digital inheritance vault: every account, policy, and instruction your family will need, encrypted so only you can read it, released to your executor when it genuinely matters.
Read more
- Joint tenants or tenants in common? How to check, and why it matters (England and Wales)
- The residence nil rate band: the extra £175,000 for your home (UK)
- How is cryptocurrency taxed when someone dies? IHT and CGT (UK)
- Farming and inheritance tax: the £2.5m cap from April 2026 (UK)
- How long does it take to get a pension paid out after someone dies? (UK)