In the workplace, protected and unprotected leaves of absence can occur for a number of reasons. It’s easy to focus on how these leaves impact employment status, but the distinction between the two is also critical from a benefits perspective. The type of leave an employee takes can influence their benefits continuation and restoration, premium payments, COBRA triggers, and measurement periods under the Affordable Care Act (ACA).
To start with, let’s define a couple of terms we often come across but may not be completely clear about. Protected leave is a period of time away from work during which an employee’s job, employment status, and certain benefits are protected under federal or state law. The most common examples of federally protected leave are available under the Family and Medical Leave Act (FMLA) and the Uniformed Services Employment and Reemployment Rights Act (USERRA).
On the other hand, unprotected leave is time away from work where employment protections, including benefit eligibility, aren’t legally safeguarded by federal or state law. Here, leave is granted solely at the employer’s discretion and not because of any legal mandate. Common examples include a sabbatical or medical leave that extends beyond FMLA or for employees who aren’t eligible for FMLA.
Benefits Requirements for Federally Protected Leaves
FMLA
In a nutshell, employers that offer group health coverage must maintain those benefits (medical, vision, dental, etc.) for employees on FMLA pretty much as if they were still coming to work each day. For the duration of an employee’s FMLA leave, which can be up to 12 weeks, the employer must:
- Allow the employee to remain enrolled in the same health plan and level of coverage
- Maintain the same employer contribution
- Allow the employee to continue paying their share of premiums by:
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- Pre-paying on a pre-tax basis (this cannot be the sole option)
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- Paying during the leave on an after-tax basis; or
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- Making up contributions on a pre-tax basis upon return from leave
- Avoid any lapse in coverage unless the employee fails to pay their portion after proper notice.
If an employee’s coverage lapses during FMLA because they elected to drop coverage or failed to pay their premiums (neither of which would typically be a COBRA-qualifying event), employees must be given the option to re-enroll immediately if they return to work when their period of FMLA is over. We’ll discuss in the forthcoming unprotected leave section about how benefits should be handled in this scenario if the employee doesn’t return to work at the end of their FMLA leave.
USERRA
Employers must allow employees who are enrolled in group health coverage (medical, dental, vision, etc.) when they begin their USERRA leave to maintain that coverage for up to 24 months. How the premiums should be handled depends on the expected length of the leave:
- If less than 31 days, the employer must continue to contribute their share of the premiums.
- If the leave is expected to be 31+ days, the employer can require the employee to pay up to 102% of their premium as soon as the leave begins.
Unlike FMLA, USERRA doesn’t outline which premium payment arrangements are permissible while an employee is on leave. But employers do need to develop “reasonable” procedures that are consistent with the terms of their plan. Premium payments are often handled similarly to how federal COBRA or state continuation premiums are handled (and in fact, federal COBRA protections may apply simultaneously).
USERRA coverage can be discontinued for any of the following:
- Nonpayment, barring some required exceptions for impossibility, unreasonableness, and military necessity
- If the employee doesn’t return to work or apply for reemployment within USERRA-specified timelines
- If the employee is dishonorably discharged
Similar to FMLA, if coverage is lost during the leave, the employee must be allowed to re-enroll in the plan immediately upon becoming re-employed rather than being subject to a new waiting period.
NOTE: For non-group health benefits, the same protections and continuation options do not apply. It’s common for other ancillary benefits to allow active coverage to continue during FMLA-protected leave, but plan eligibility and policy language should be reviewed to confirm.
State-Protected Leaves
Many states have implemented their own protected leave laws, some of which closely align with FMLA, others of which offer broader or different kinds of employee protections. While these requirements vary significantly from state to state, state-protected leave laws generally impose benefit protections and premium payment parameters, in some cases beyond what is required under FMLA. For example, Minnesota extends protection to all benefits, not just group health plans.
It can be particularly difficult for employers with multi-state workforces to navigate state-protected leaves, as which law applies depends on where the employee works, not on where the company is headquartered. We’ll save a discussion of those leaves for another day, but it is important for employers to be mindful of them when developing their own unprotected leave policies and helping employees navigate leave requests.
Benefits During Unprotected Leaves
Once an employee is on unprotected leave, the employer’s internal policies and plan documents, including any specific carrier eligibility rules or restrictions, govern which benefits may or may not be available to the employee. The default is that a loss of eligibility will generally occur due to a reduction in hours unless the employer has a specific policy allowing benefit eligibility to continue. Lumelight encourages all employers to document their unprotected leave policies to ensure they’re treating all similarly situated employees equally and in alignment with their plan rules. Doing so in advance also helps ease confusion and uncertainty when an employee actually needs to take such leave.
Below are several items we recommend employers consider when formulating the health coverage component of an unprotected leave policy:
- Benefits Eligibility: will enrolled employees remain eligible for group health coverage for a certain period of time? If so…
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- Be sure to document how long the eligibility will last and if the company will continue to contribute its portion of the premium.
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- Ensure each applicable carrier/stop-loss carrier approves of this policy.
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- If the leave is unpaid, consider what premium payment options will be offered to employees. Most employers either require employees to pay monthly while on leave (after-tax) or allow employees to make catch-up contributions upon return (pre-tax). The length of the leave may determine which option the employer makes available.
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- What procedures will the company follow once benefits eligibility ends (e.g., offer COBRA/state continuation coverage as applicable)?
- COBRA/State Continuation Coverage: As implied in the previous bullet, employees who lose group health coverage because of unprotected leave are generally entitled to an offer of COBRA or state continuation coverage, if applicable. The company should have processes in place to ensure timely offers of this coverage are made to eligible employees.
- Interaction with Protected Leave: Explain clearly how unprotected leave interacts with protected federal or state leave.
- Benefits Reinstatement Upon Return to Work: If coverage terminates during an unprotected leave, how will the company handle benefits reinstatement once the employee returns to work? The answer may vary depending on the length of the leave, the employee’s full-time status, whether the company is subject to the Affordable Care Act’s employer mandate, etc. If the process depends on the scenario, be sure to document how each is handled.
Employee Leaves and the Lookback Measurement Method
Counting Hours During Leave
It’s important for applicable large employers that use the lookback measurement method to understand how different kinds of leave impact those measurements.
- If the leave is paid, hours of service would need to be credited accordingly
- If the leave is unpaid and the absence is due to…
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- FMLA, USERRA, or jury duty: the employer must either exclude the leave of absence from the measurement period or impute hours of service during the leave using the average obtained during the remainder of the measurement period
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- Short-Term or Long-Term Disability: as long as employees pay for their disability benefit with after-tax contributions, no hours of service need to be credited. If employees pay for their benefits pre-tax, hours of service should be credited while the individuals remain employed
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- Workers’ Compensation: Hours of service typically don’t need to be credited for employees out on this kind of unprotected leave
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- Any other kind of unprotected leave: Hours of service don’t need to be credited
Benefits Reinstatement Upon Return to Work
For enrolled full-time employees who lose coverage during a protected or unprotected leave, how their eligibility reinstatement should be handled depends on the length of their absence.
- If the leave is less than 13 weeks, employees must be given the option to reinstate coverage no later than the 1st of the month following rehire. It is important to note that benefits should instead be re-offered immediately for employees returning from FMLA or USERRA leave.
- If the leave is 13+ weeks, employees can be subjected to a new waiting period or initial measurement period, as applicable. It’s particularly helpful to clarify the company’s procedure here in the company leave policy.
