How Should Benefits be Handled When an Employee Takes a Leave of Absence?

When an employee is no longer working full-time (FT) due to a leave of absence, the employer cannot just leave the employee on benefits for as long as they like.  There can be some flexibility, but there should be written guardrails ensuring most leaves are treated similarly so no one is discriminated against and to ensure the insurance/stop-loss carrier will ultimately pay covered claims.

• USERRA Protection: The Uniformed Services Employment and Reemployment Rights Act (USERRA) permits the employer to treat military leaves of 31 days or longer as moving to COBRA (for 24 months instead of 18 months) due to a reduction in hours.
  • USERRA leave shorter than 31 days must maintain benefits.

• FMLA Protection (and state/local leave laws):
  • Health benefits must be maintained during the protected leave, but the employer can usually arrange how the employee must pay their share of premiums.
    • Requiring the employee to keep paying their share along the way is typically fine (unless a state/local leave law prohibits it).  If this is required of FMLA, then it must be required of non-FMLA leaves, too.
    • However, most employees only have a limited amount of paid leave, so there could be many weeks that are unpaid or only part of their income is replaced.  Since keeping up their share of premiums may be difficult, many employers allow the employee to rack up a tab and then make double paycheck deductions once they return to full-time work.
  • Other benefits are not required to be maintained under FMLA (but may be required by state/local leave laws).  However, any benefits that lapse must be immediately reinstated upon resuming FT work.  Resuming benefits on the first of the next month is compliant.
    • If the life or disability plan requires evidence of insurability before benefits can resume, that can cause issues with the employer’s requirement to reinstate.
    • The employer should discuss with the insurance carrier beforehand how long people taking FMLA (or a state/local leave) may remain on non-health benefits and what is required to reinstate if their coverage lapses.
  • No Other Federal Protections: It is a common misperception that workers' comp, ADA, or PWFA protect benefits (similar to benefit protections under USERRA or FMLA).
    • Workers' comp is actually state law, not federal, and must pay expenses related to the employee’s injuries.  There is no requirement to maintain other benefits when not working FT.
    • The Americans with Disabilities Act (ADA) and Pregnant Workers Fairness Act (PWFA) require an interactive process to determine whether reasonable accommodations can be provided.  If accommodations result in a reduced work schedule to PT (usually below 30 hrs/wk) or a leave of absence, benefits do not have to be maintained if another protection does not apply.

• ACA Lookback Method FT Stability Period Protection: An employer utilizing the lookback method under the Affordable Care Act (ACA) would want to keep an employee in a full-time stability period enrolled in the FT medical plan at FT rates in order to avoid potential ACA penalties.
  • Some employers word their plans to allow someone in a FT stability period to also be eligible for dental, vision, or other benefits, so those benefits may also be able to remain intact.

• Approved Leave Protection: From there, the default is going to be the month any protections end (or the last month the employee worked FT if there are no protections available) is the final month the employee has coverage and is offered COBRA due to reduction in hours, or other continuation as applicable.
  • However, the employer might negotiate with the insurance/stop-loss carrier to allow extra time, perhaps a month or two, before a move to COBRA is required.  This can help ensure people are not moving in and out of COBRA unnecessarily when they are anticipated to resume FT work within a few weeks.

When an employee must be moved to COBRA, the employer can certainly consider whether to offer a COBRA subsidy for a limited time to keep the employee’s share of the premium the same.  If an employer wants to pursue this, the subsidy arrangement should be in writing, only last for a limited time, and be developed in consultation with qualified counsel to ensure they do not set a precedent, do not discriminate, and do not inadvertently convey legal rights/obligations not intended by the employer or carrier.