By Penny C. Wofford, Shareholder in Ogletree Deakins' Greenville office
The Family and Medical Leave Act (FMLA) is a federal law that applies to employers with 50 or more employees. If the law applies to an employer, it gives eligible employees the right to take up to 12 weeks of leave in a twelve-month period for qualifying conditions without having the leave count against the employee.
Not only does the FMLA provide leave for eligible employees, but it also requires an employer to follow specific rules for continuation of health benefits during leave. These specific benefit continuation rules apply to group health benefits and not to other types of welfare benefits such as life or disability coverage. However, the FMLA generally requires other benefits to be maintained during FMLA as the employer maintains coverage during other forms of non-paid leave.
Regardless of whether benefit plan coverage continues during FMLA or not, the FMLA entitles the employee to immediate reinstatement without qualification or waiting period to any benefit plans upon return from leave on the same terms as prior to the employee taking leave.
Group Health Benefits
During FMLA leave, the employer must maintain the employee's group health plan coverage on the same basis as if the employee were actively working and not on leave. Group health plans include:
- health, dental and vision plans;
- on-site medical clinics;
- health flexible spending accounts;
- health reimbursement accounts; and
- some employee assistance programs.
Any share of the premium for these coverages paid by the employee prior to FMLA leave must continue to be paid by the employee during leave.
Premiums Payments During Paid Leave
If the employee is on paid FMLA leave, the FMLA requires that the employee's premiums for coverage continue to be deducted from the employee's pay. However, if the employee is receiving payments from a workers' compensation carrier as a result of an on-the-job injury and simultaneously taking FMLA (which is considered paid leave), the employee must make arrangements to pay his or her share of premiums for health plan coverage. Likewise, an employee who is receiving short-term disability benefits from an insurance carrier for the employer's short-term disability plan (which is also considered paid leave), must make arrangements to pay his or her share of premiums for health plan coverage.
Premium Payments During Unpaid Leave
If the employee is on unpaid leave, the FMLA allows a number of methods for the employee's payment of premiums, including:
Pay-As-You-Go Option. Under the pay-as-you-go option, the employee continues to pay premiums on a regular basis throughout the FMLA leave. Payment can be due at the same time as it would if made by payroll deduction or on the same schedule as payments are due under COBRA. Because the employee is on unpaid leave, the employee will make the premium payments on an after-tax basis.
The employer must provide advance written notice of the terms of payment, including the amount due, due date, and an address for payment. These details are not included on the model Notice of Eligibility and Rights & Responsibilities published by the Department of Labor, Form WH-381. In fact, Form WH-381 directs the employee to contact the employer to make arrangements regarding benefit premium payments. The employer must add these details to Form WH-381 or outline them in a separate written notice to the employee.
The FMLA requires a 30-day grace period for the employee's premium payment. If an employee fails to make a premium payment, the employer must give the employee 15-days' written notice in advance of termination of coverage, advising that the payment has not been received and coverage will be terminated if not received by a specified date at least 15 days after the date of the letter. To avoid a 45-day or longer period in which the employer is providing coverage without premium payment, a best practice is to notify the employee within 15 days of non-payment and allow 15 days for the employee to pay the premium so that, at most, coverage is provided without payment for only the required 30-day grace period.
The employer can retroactively terminate the employee's coverage to the date of the last payment if the 15-day notice is provided and the employee still fails to pay the premium, but only if the employer has established policies regarding other forms of unpaid leave that provide for the employer to retroactively terminate coverage. A best practice is to include a provision regarding retroactive termination of coverage in both handbook leave policies and in the applicable benefit plan documents.
Catch-Up Payments. Any employer may allow an employee to catch up on missed premium payments upon the employee's return to work. An advantage to allowing an employee to catch-up on payments upon return to work is that the employee can make the premium payments on a pre-tax basis through the employer's cafeteria plan. A disadvantage is that, if the employee does not return to work, the employer is not likely to recoup the payments.
This option requires the employer to pay the employee's share of the premiums for coverage due to insurance carriers. The employer must provide written notice in advance that it may advance the employee's premium payments and obtain the employee's agreement to repay the employer upon return to work (obtain an authorization for deduction from the employee's pay).
These details are not included on the model Notice of Eligibility and Rights & Responsibilities Form WH-381. Form WH-381 directs the employee to contact the employer to make arrangements regarding benefit premium payments. The employer must add these details to Form WH-381 or outline them in a separate written notice to the employee.
Pre-payment Option. Under the pre-payment option, the employee may increase the employee's salary reduction in an amount sufficient to cover the premiums that will come due during FMLA leave. The pre-payment option must be voluntary for the employee and cannot be required by the employer. An advantage to the pre-payment method is that it allows the employee to pay premiums on a pre-tax basis through the employer's cafeteria plan. The pre-payment option generally works best and is elected most often for foreseeable FMLA leave.
Suspension of Coverage Option. Often overlooked by employers is that an employee has an option to suspend health plan coverage during FMLA. In fact, the FMLA regulations specifically provide that an employee may choose not to retain group health plan coverage during FMLA leave. 29 CFR Â§ 825.209(e).
Many employers sponsor a Section 125 plan which allows employees to pay for premiums for coverage on a pre-tax basis through payroll deduction. A Section 125 plan (referred to as such because these plans are governed by Section 125 of the Internal Revenue Code) are also known as cafeteria plans, premium only plans, or flexible benefit plans. Section 125 plan regulations outline the requirements for Section 125 plan elections during FMLA leave. The regulations require that the employer allow an employee on unpaid leave to revoke coverage unless the employer pays the employee's share of premiums during leave.
Details about an employee's option to suspend coverage are not included on the model Notice of Eligibility and Rights & Responsibilities Form WH-381. The employer should add these details to Form WH-381 or outline them in a separate written notice to the employee.
FMLA and COBRA
When group health plan coverage terminates, the Consolidated Omnibus Budget Reconciliation Act (COBRA) requires that the employer give the employee the option to continue coverage at the employee's own expense if coverage terminates due to a qualifying event. This continuation of coverage is generally called COBRA coverage.
FMLA leave is never a qualifying event under COBRA. However, if an employee fails to return to work at the expiration of FMLA, a COBRA qualifying event occurs if the employee loses health plan coverage. In addition and somewhat counterintuitive, a COBRA qualifying event will occur at the expiration of FMLA if an employee fails to return to work, even if the employee's coverage lapsed during FMLA either because the employee voluntarily suspended coverage or due to the employee's non-payment of premium. In this case, an employee has a gap in coverage with the ability to elect COBRA at the expiration of FMLA.
If the employee returns to work at the expiration of FMLA, any lapsed or terminated coverage is immediately reinstated for the employee.
Other Types of Welfare Benefits
The FMLA does not require welfare benefit coverages other than group health plan coverages to be maintained during leave. The Employee Income Retirement Security Act (ERISA) requires that the written terms of those plans apply.
To determine what length of time coverage may continue during FMLA, employers must review and understand the eligibility requirements in their benefit plan documents. Most plans allow coverage to continue on an active basis during FMLA if premium payments are made.
Benefits Continuation Upon Expiration of FMLA
If an employee remains on leave at the expiration of FMLA, regardless of the type of benefit plan â€” whether a health plan, a short-term or long-term disability plan, or some other benefit plan â€” the plan will set forth specific eligibility requirements that an employee must meet in order to remain an eligible participant in the plan. Generally, employer-sponsored plans will define an eligible employee as one who is "actively at work". Additional terms in the plan document will detail the number of hours the employee must be regularly scheduled to work to meet the "actively at work" requirement. Some plans may also contain exceptions to the eligibility requirements that will allow the employee to continue coverage under the plan, at least for a period of time. If an employee no longer meets the eligibility requirements, and if no exception applies allowing the employee to continue his or her coverage, then the employee ceases to be an eligible plan participant and is no longer eligible for benefits under that plan.
The FMLA applies technical rules for how benefit coverage must be maintained during qualifying leave. Most notable, an employer is required to provide advance notice, in writing, notifying the employee and explaining how benefits with continue and the expectations for the employee regarding premium payments.