Guest Author: Tony Haberman, President, The Haberman Group
While many employers are contemplating the tough decision of whether to furlough or layoff employees, a question arises as to how this would affect their employees’ benefit eligibility. Under normal circumstances, the employee would no longer be eligible for health or ancillary coverage and would be offered COBRA or State Continuation. However, under this crisis, the rules have been relaxed by many insurance carriers to mitigate the negative impact to both employers and employees.
FURLOUGH vs. LAYOFF
Generally, when an employer is furloughing employees, the employer/employee relationship is not severed. Conversely, when the employer is laying off employees, the employment relationship is terminated.
FURLOUGH: When an employer furloughs an employee, generally the employee is required to work fewer hours or take a certain amount of unpaid time off. The employer believes that the condition causing the furlough will change and intends to reinstate the person to normal hours, when work becomes available again. Continue Health and Ancillary Benefit Coverage: Most insurance carriers in NY are allowing employees to maintain benefit coverage for a limited period of time. These carriers are allowing employees that are furloughed to remain active on the plan through May 31, 2020. This also applies to ancillary coverage (dental, vision, etc.). Confirm with your carrier to see if this applies with your plan. How does an employer collect the employee’s health contribution, if they are furloughed: The employer can collect the employee’s share of premium to maintain the coverage during a paid or unpaid leave of absence. Premiums may be collected (as determined by the employer’s policy) in one of the following manners:
Catch up: Some employers will choose to keep the employees (on leave) enrolled in their benefits until they return to active work, and then recoup those payments at the time. If there is a fairly large premium payment due, it may be necessary for the employer to take deductions over several payroll periods. In some cases, state wage and hour laws will limit the amount that can be deducted from pay (thus the cap may be necessary).
Pre-pay: If the leave is scheduled in advance, and the employee remains eligible for benefits during the leave, the employer may collect the employee’s share of premium for the rest of the plan year from the employee’s pre-tax earnings before the start of the leave. However, if the leave is anticipated to span more than one plan year, the employer cannot collect the premiums for the latter part of the leave since this would violate the cafeteria plan regulations prohibiting deferred compensation.
Pay-as-you-go: During the leave, the employer may require the employee to pay the employee’s portion of the premiums to maintain coverage. Such payments would generally be on an after-tax basis. The employer could require payment no more frequently than regular deduction frequencies for employees during periods of active work. Most employers collect premiums from employees on leave of absence on a monthly basis.
Please consult with your payroll vendor for further guidance, before implementing any of the above payment options.
LAYOFF: Under a layoff, the employment relationship is terminated, and the employee is no longer on payroll. Therefore, the employee normally loses eligibility under a health and ancillary plan. The employer believes that the condition causing the layoff will change and intends to recall the person. Employees can typically collect unemployment while on an unpaid layoff.
Continue Health and Ancillary Benefit Coverage: Most insurance companies in NY are NOT allowing employees to maintain benefit coverage. Thus, COBRA or State Continuation will need to be offered for the health and ancillary benefits (medical, dental, vision, health FSA, etc.). Loss of health eligibility is also a qualifying special enrollment event for the individual health market.
Who pays for COBRA coverage: The employee generally pays the full cost of the insurance premiums. The Federal law allows the employer (COBRA administrator) to charge up to 102 percent of the premium to cover administrative costs. Employers can choose but are not required to subsidize COBRA for terminated employees.