FMLA and Employee Benefits

Generally, when we address questions regarding an employee’s use of leave under the Family and Medical Leave Act, the focus is on the employee’s eligibility for such leave, including questions of whether the employer has enough employees to be subject to FMLA, did the employee work enough hours to obtain coverage under the law, and does the employee have a situation that is covered by FMLA.  Once we have established that an employee is eligible for FMLA, our attention then turns to the question of medical certification, administration of the leave, and what counts toward their FMLA leave entitlement.  One area, however, which creates a real cost for employers is the provision of the FMLA that requires employers to continue employee benefits while out on an unpaid FMLA leave. 

Under the FMLA, an employee who is out on an unpaid FMLA leave is entitled to continue to participate in the employer’s group health insurance plan on the same terms and with the same benefits that they had while actively at work.  This means that employees must continue to receive all notices regarding group health insurance plans, including open enrollment notices and other documents that provide information regarding the employee’s rights under the plan.  What is sometimes glossed over is the phrase “on the same terms as if [the employee] had continued to work.”  This means that employers can continue to require employees on unpaid FMLA leave to pay their share of the premium costs of the group health insurance plan.  If an employee is using paid leave concurrently with the unpaid FMLA leave, the collection of the employee’s share of the health insurance premium is easy – it can continue to be taken as a deduction from the employee’s paycheck.  However, once those paychecks stop and the employee enters into unpaid status, an employer must have a system in place regarding how to collect the employee’s share of premiums. 

When addressing the issue of health insurance premium contributions from an employee on unpaid leave, the employer must give the employee advance written notice of the terms and conditions under which these payments must be made.  Employees on an unpaid FMLA leave are subject to all changes in the group health insurance plans, including the requirement that they pay any increased premium costs that occur during their leave.  Employers may require employee on leave to pay their share of the premium in any one of the following ways:

• Payment should be due at the same time as it would be made if by payroll deduction,

• Payment should be due on the same schedule as payments are made under COBRA,

• Payment can be prepaid pursuant to a cafeteria plan at the employee’s option,

• Existing rules for payment by employees on “leave without pay” may be followed, provided that such rules do not require prepayment of the premiums that will become due during a period of unpaid FMLA leave or payment of higher premiums than if the employee had not taken leave; or

• Another system voluntarily agreed to by the employer and the employee.

Note that, like a COBRA situation, the employer may require that payment be made to the employer or to the insurance carrier, but – unlike COBRA – no additional charge may be added to the employee’s premium payment for administrative expenses.

If an employee fails to pay their share of the cost of the health insurance premiums, the employer may terminate the employee’s coverage.  Such termination of coverage, however, is subject to several procedural requirements.  First, an employer may seek to terminate an employee’s coverage for failing to pay the premium only after the payment is 30 or more days late.  Once the employee has not paid their premium within the 30-day window, the employer must send the employee a written notice  that the payment has not been received, and that his or her insurance coverage will end at a specified date at least 15 days after the date of the written notice unless payment is received by that date. This notice must be mailed to the employee at least 15 days before coverage is to cease.  Only after all those steps have been taken can an employer terminate the employee’s group health insurance coverage while on FMLA leave. 

It is also important to note that, even when an employer terminates an employee’s group health insurance for failure to pay the premium, the employee retains all other rights available to them under the law, including the right to reinstatement to the position they left or to a position with equivalent pay and benefits.  This means that, when an employee returns to work after their FMLA leave is over and they have lost their group health insurance coverage due to non-payment of premiums, the employer must restore their group health insurance benefits upon their return. Employers may recover any amounts they have paid that are attributable to the employee’s share of the premiums while the employee was on unpaid leave.   

Employers may also, under certain circumstances, recover the cost of the employer’s share of the premiums paid for group health insurance if the employee does not return from FMLA leave.  This ability to recover group health insurance premiums is limited, however, and does not apply in situations where the employee is unable to return to work due to circumstances beyond the employee’s control.  This could include such situations as: where a parent chooses to stay home with a newborn child who has a serious health condition; an employee’s spouse is unexpectedly transferred to a job location more than 75 miles from the employee’s worksite; a relative or individual other than a covered family member has a serious health condition and the employee is needed to provide care; the employee is laid off while on leave; or the employee is a key employee who decides not to return to work upon being notified of the employer’s intention to deny restoration because of substantial and grievous economic injury to its operations and is not reinstated. 

When an employee fails to return to work, any health and non-health benefit premiums that the FMLA permits the employer to recover are a debt owed by the non-returning employee. To the extent recovery is allowed, the employer may recover the costs through deduction from any sums

due to the employee, provided such deductions do not otherwise violate applicable federal or state wage payment or other laws. Alternatively, legal action may be initiated against the employee to recover such costs.  The employer’s right to recover these expenses terminates once the employee has returned to work from FMLA leave for 30 days.  myHRcounsel can help you navigate all of the complexities of FMLA leave, including the requirement to continue an employee’s benefits while on FMLA leave and to recover any costs incurred to do so when the employee fails to return to work from FMLA leave.