Dear Addi P.,
There have been employees at my business who have been furloughed as a result of COVID-19. What are your actionable recommendations for administering benefits to these employees during this challenging time?
— Furloughed in Fresno
Dear Furloughed in Fresno,
Furlough benefits administration can be multifaceted, particularly so during a global pandemic. To get some answers, I spoke to Sushma Tripathi, ADP Vice President of Strategic Advisory Services. Here's what she has to say on this topic, which remains top of the mind for many HR leaders.
Addi P.: What are the relevant laws and regulations business leaders should be aware of when it comes to administering furlough benefits, especially during the current climate?
Tripathi: It's important to note that there are no federal or state laws that directly address benefits for furloughed employees, but there are several laws to still take into account when considering this question.
For instance, the Families First Coronavirus Response Act (FFCRA) does not address furloughs, but there are a host of laws that are implicated. In other words, there are other laws that may be triggered by furloughing an employee, for example, the federal Worker Adjustment and Retraining Notification or WARN Act. Employers must review state law, because some states have mini-WARN laws, which may be more onerous than the federal WARN Act.
There are other compliance areas to consider too. This includes the Fair Labor Standards Act (FLSA), as state wage and hour laws still apply. In addition, if the plan is fully insured, there may be group coverage policy or state insurance considerations as well. Also, for healthcare benefits compliance, a reduction in hours or furlough is generally not a COBRA qualifying event, unless it results in a loss of group health coverage. Employers, however, can extend these benefits, even if their plan makes the individual ineligible. Additionally, furloughed employees are not eligible for Emergency Paid Sick Leave Act (EPSLA) and Emergency Paid Family Leave, under the FFCRA, but there may be state implications. Lastly, they may be eligible for unemployment insurance based on various state laws.
Vacation or PTO usage is another consideration. If you offer vacation/PTO benefits to your employees, you can require exempt employees to use accrued vacation/PTO time during a furlough. This applies to both office closures and furloughs for full or partial days as long as your employees receive their guaranteed weekly salary. However, if exempt employees have exhausted their vacation/PTO time, they still need to receive their guaranteed weekly salary to remain exempt from overtime.
Addi P.: How would ACA compliance be affected?
Tripathi: It remains important to follow the eligibility definition under your plan eligibility rules as well as the Affordable Care Act (ACA) to avoid the shared responsibility penalty. Under the ACA, full-time employees, who work 30 hours per week or 130 hours per month must be offered affordable, minimum essential coverage. You'll need to consider whether or not your employee is in the stability period before terminating benefits. Keep in mind that an employer's plan rules will govern whether either reduction in hours or furlough event will result in a loss of coverage. And employers should ensure COBRA election notices are sent if there is a loss of coverage.
Another important consideration is that the ACA does not limit health plan eligibility to full-time employees. Employers can be more generous and broaden their eligibility criteria, and I've seen a lot of employers consider that. Therefore, you can allow employees to defer their contribution until they are working again or make payments to their share of the premium via direct bill on a post-tax basis. Remember, state law applies, and some states have specific requirements related to payroll deductions.
Overall, you should be cognizant that the ACA is still the law of the land, and the employer mandate needs to remain top of mind. This means you'll need to consider the affordability factor. For instance, loss of income due to a furlough may create affordability issues. This can occur if the employer relies on the Form W-2 or rate of pay affordability safe harbors option under the ACA.
Addi P.: What do leaders need to consider for group health plans?
Tripathi: Group health plans are complex when it comes to eligibility and enrollment. Therefore, you'll need to review your plan documents and insurance contracts to assess all options for furlough benefits. There may be financial implications as well, so this requires careful consideration to ensure written documents outline the rules for your group health plan, including a definition for eligible employees.
For instance, most employers' plans address impact to benefits for protected leave laws such as unpaid time off that is qualified under the FMLA. However, employers that haven't experienced furloughs have to engage legal and finance departments to evaluate all their options to make the right decision. Based on the decision, amending the plan as well as communicating to and educating employees may be needed.
Keep in mind, although employers have some discretion when determining parameters and making changes prospectively to their group health plan, they are still responsible to review for compliance – including avoiding discriminating in favor of highly compensated employees as it relates to discretionary decisions.
Addi P.: For employees returning from furlough, what needs to happen?
Tripathi: This depends on the length of time the employee was furloughed. If the furlough is short, i.e. 30 days or less, the old election may be what needs to be re-instated. However, if the furlough is for a longer period of time and there is a loss in coverage, I've seen employers engage in a new hire-like on-boarding experience for the returning employee — including the requirement to complete new hire paperwork for health and welfare plan eligibility. In general, benefits eligibility for your employees returning from furlough depends on several factors, including the duration of the break in coverage. It's defined by the plan document, and for some plans, there's no break in coverage, and benefits eligibility may resume upon their return to work. The same applies to open enrollment.
For employees who have lost coverage and were offered COBRA, you'll need to determine eligibility based on your plan document and conduct enrollment in accordance with the rules of that plan. Consider ACA requirements for look-back measurement periods (for more information on this, see the ACA Times) and stability periods, as well as HIPAA, special enrollment rights that may apply. Furthermore, you'll want to evaluate eligibility for wellness program incentives, for example, for premium reduction and contributions to HSAs. This can become more complicated if employees have reduced hours or staggered work schedules.
For other benefits plans, such as 401(k) plans, employee and employer contributions often resume upon return from furlough, based on elections in place immediately before the furlough period. Address loan repayments, too. Although not common, if you offer defined benefits or pension plans, you'll need to review the plan terms to determine eligibility, vesting and benefit accrual.
Addi P.: Thank you, Sushma. Overall, furlough benefits should be evaluated carefully. On top of this advice, it's important to seek legal counsel to remain compliant while acting in the best interest of your employees.
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Addi P. is a digital character who represents the human expertise of ADP. The questions and challenges come from professionals who manage people at companies of all sizes. The advice comes from ADP experts who have a deep understanding of the issues and a passion for helping leaders create a better workplace. If you have a challenge you'd like to pose for Addi P, complete this simple form.
The information provided here is for general informational purposes only and not legal, accounting or tax advice. The information and services ADP provides should not be deemed a substitute for the advice of a professional who can better address your specific concern and situation. Any information provided here is by nature subject to revision and may not be the most current information available on the subject matter discussed.
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