This post is really not about the death, tho. It's about the people still alive.
One of my employees died today. He'd been very sick for a while, and it wasn't unexpected, but it was still quite a blow. He's only three years older than me, and I'm young. He died of heart failure, altho he was also experiencing liver failure, kidney failure, and lung failure, all resulting from drug and alcohol abuse in earlier years. It was very removed from me, as I had only been transferred to this store in mid-March, and had never met the young man, but it's evident that he had left an impact on his co-workers and even on our customers. He was very loved, and will be very missed.
My struggle is not finding the emotional strength to survive the shifts, nor is it to deal with the loss. My struggle is maintaining the objective balance which takes my employees firmly by the shoulders and looks them straight in the eye and tells them, "Look, we're all in this together, and everyone else NEEDS you, just like you need them. We can all do this, and we will all make it thru, but we need you to be here and do your job, just for now. Let's just get thru the next six hours."
How do you show compassion and sympathy and understanding and still be firm and run a business? This will be a busy weekend, and we are open every day. This is also Easter weekend, and now there will be a viewing and funeral, and I will have only a handful of very new employees incapable of holding a shift together on their own for the day of the funeral. Closing our store is not an option, as we're part of a (small) corporation. We've called other stores to try to find employees that would be willing to fill in, but we're over an hour away from most of them (several hours for some), and it's a holiday weekend. Whoever isn't working has plans, and no-one is keen to drive and drive just to fill in for us. Hell, I hate the drive myself.
I had to deal with this twice my first year as a teacher. In many ways, managing a classroom is very similar to managing a business. So much psychology is involved. I'm not going to suggest a "right" or "wrong" way here, because methods vary between managers and their effectiveness depends upon the employees as well.
That being said, why not say to them what you said above? Just be firm, yet gentle. Make it clear that it is important to work through this, but at the same time don't give anyone too much slack. What I did was that on the day after the two died, I had a brief talk with my students. I let them air out what they were feeling, I listened, then I made it clear that they still had work to do. Most were fine after 3 days. For those that weren't, I just softly encouraged them to do what they could, but also let them know that they weren't going to get free passes either to skip out on their assignments. Also, (and here's an idea in case some might want to make a positive gesture) some of my students decided to collect money from their graduating class (they were seniors) to pay for part of the funeral. I think that helped them a lot in overcoming their grief, the feeling that they could do something positive.
So I'm guessing what you have to do is show that you ache as well, but also show them that in such times, it's best to work through it after venting briefly. While it's not good business practice to have employee talks during business hours, maybe allowing 15-20 minutes for the shift personnel to talk with you or each other after their shift ends would help them be in a better frame of mind.
I'm not really looking for people to solve this problem, I want to say. It's not really going to be solved as much as it is going to be endured. Eventually, life will return to some form of normalcy, and everyone will grieve after their own fashion, but until then, each shift is a mess of crying employees hiding in the break room, chain-smoking and insisting they can't do their job, they just can't. I ache for them, but I have to run the business. 
It's advice or words of wisdom (or even encouragement!) from anyone who's been there, on one side of the fence or the other, that I'm looking for.
And thanks, folks.
~Erica
Don't know if what I said helped any, but I do know where you're coming from, Erica. Hope things do improve in the near future. Take care.
Dylanfanatic 
Illusions fall like the husk of a fruit, one after another, and the fruit is experience. - Narrator, Sylvie
*NM*