FAQ: What do employers need to take into account when contemplating furloughs or other leave options for employees affected by COVID-19?
March 17, 2020
If the furloughed employee has the coronavirus, or a family member has it, then it is possible that it will be a FMLA leave. In that case, benefits would continue on the same terms as before the employee took the leave, for the duration of the FMLA leave (usually up to 12 weeks in a 12-month period).
UPDATE: Congress passed a temporary expansion of FMLA that provides qualified employees up to 12 weeks of protected leave taken for certain COVID-19 related events, some of which as paid leave. Previously, FMLA did not require that the leave under the statute be paid. Employees can take this leave if they must take care of a child because school or daycare is closed due to the outbreak and they cannot otherwise work or telework. The first ten days of this leave is unpaid leave, although the employee may use accrued vacation or sick leave during that time, in accordance with the employer’s leave policy. The employee may also qualify for emergency paid sick leave, provided for under the same legislation, which could be used during the first ten days of the expansion leave, as discussed below. The employee must be paid at 2/3 the employee’s rate (but capped at $200 per day and $10,000 in the aggregate) for the paid time off granted under this expansion. The expansion lasts until December 31, 2020.
Importantly, all employers with fewer than 500 employees must comply with the expanded leave entitlements (a change to the 50-employee threshold that currently applies under FMLA). That said, the law gives the DOL authority to exempt employers with fewer than 50 employees if the paid FMLA provisions would jeopardize the viability of the business. Also, while not directly addressed in the new law, it appears that the general FMLA rules for counting employees would apply; if separate business entities (separate EINs or business lines) have different management and separate operations, then the entity would count employees separately from the bigger controlled group of entities — employers should work with counsel to be sure. Additionally, any employee who has been employed for at least 30 calendar days would be eligible for the expanded leave (but there are exceptions for employers that are experiencing economic hardship and employ fewer than 25 employees — we assume the DOL will further clarify that via regulations). Finally, the job protection requirements of the FMLA would also apply to COVID-19-related leaves (meaning employers must reinstate employees after their FMLA period ends), although there are some exceptions for employers with fewer than 25 employees.
To help employers shoulder the financial burden, employers can claim a tax credit equal to 100% of qualified sick leave wages paid to employees. These credits, however, are limited to $200 to $511 per day, depending on the qualifying leave event. Employers can claim a full credit for employees earning up to $132,860 in income and a partial credit for higher earners.
In addition to the FMLA expansion, new legislation grants certain employees immediate access to up to 80 hours of emergency paid sick leave. Employers with fewer than 500 employees and employees of public employers must make this leave available to employees. Applicable employees can take this leave if they are:
- Diagnosed with COVID-19, to self-isolate (or to obtain a diagnosis or care for symptoms of COVID-19)
- Under quarantine to comply with an official order or recommendation because of COVID-19 exposure or symptoms
- Providing care to a COVID-19-diagnosed individual or an individual seeking a diagnosis or care for symptoms of COVID-19
- Caring for an individual affected by a school or other care facility closing
During sick leave relating to an employee’s own condition, employers are obligated to pay employees the higher of their regular rate of pay or the applicable minimum wage. That amount is capped at $511 per day and $5,110 in the aggregate. For sick leave taken to care for a family member, the rate of pay is reduced to two-thirds of the employee’s regular rate of pay. That amount is capped at $200 per day and $2,000 in the aggregate. It appears that this emergency paid sick leave could be used during the first ten days of the expanded FMLA leave, if the employee needs the leave to take care of children who are out of school or daycare due to COVID-19.
Note that this new legislation authorizes the federal Department of Labor has the authority to enact regulations that exempt employers with fewer than 50 employees from complying with the emergency aid sick leave as well as the FMLA expansion, under certain circumstances.
If the furloughed employee or the employee’s family member is not affected by the coronavirus, then the situation becomes more complicated. The answer varies upon the employer’s size, whether they are subject to the employer mandate, whether they use the monthly or look-back measurement methods, what their plan document says, what any SCA or DBA contracts say, what is outlined in their Section 125 Plan Document as a qualifying event, and how long the furlough lasts.
ERISA Plan Document and any Employment Contracts
First, the employer needs to look at the plan document and review the plan’s terms of eligibility. If the employer has experienced this issue before, then they may have previously put language in their plan documents about furloughs or leaves of absence and continued coverage. If there are SCA or DBA contracts in place, they might want to review those as well to see if there are any special provisions. This goes for all benefit offerings- medical, dental, vision, life, disability, etc.
If there are no special terms, then it just comes down to regular old eligibility- which for medical, dental, and vision probably says something like” employees are eligible if they normally work X hours per week or are determined to be full-time.” If it’s a small employer, an employee not working X hours per week would not be eligible under the terms of most plans, so coverage would be terminated with COBRA or state continuation offered. This would go for dental and vision for all sized employers as well- as soon as the employee no longer meets the terms of eligibility, coverage is terminated and COBRA offered.
If the employer is a large employer, then they need to consider the employer mandate rules as well for medical coverage. If they are using the monthly measurement method, then an employee who has a change of status (and no longer eligible for coverage) would be terminated at the end of the month with COBRA offered for reduction of hours.
If they are using the look-back measurement method and the employee was one who was previously determined to be full-time in a measurement period, than the employee would remain eligible through the end of the stability period regardless of the number of hours they work.
Payment of Contributions
Usually the employee pays for his or her premium contribution through a paycheck deduction. Employers of all sizes must consider how employees who are on leave without pay make premium contributions without a paycheck to deduct from. Generally, the rules for FMLA premium payment can serve as useful guidelines. For instance, the employer may require that employees pay during the furlough period by personal check. The payments may be due per pay period or per month. The employees should be provided with written notice of the payment method, due date and consequences for nonpayment (termination of coverage). Alternatively, the employer could permit the employee to pay upon return, but this is typically not preferred when the return date is not known.
Section 125 Cafeteria Plan Document and Reinstatement
All sized employers also need to consider the Section 125 cafeteria plan rules. Let’s say that an employee continues to be eligible for coverage under the terms of the plan and/or employer mandate rules, but wants to drop coverage because of no pay. Is this allowed? There is a qualifying event permitting employees to drop coverage based on an unpaid leave of absence if the Section 125 Cafeteria Plan Document provides that such employees lose eligibility under the cafeteria plan. If they return to work within 30 days after dropping coverage, they would be reinstated to the same coverage with no chance to change elections.
For a large employer subject to the employer mandate, if they return to work after 30 days but before 13 weeks, they would be reinstated to eligibility and would have the right to change elections. If they return beyond 13 weeks, then they could be required to meet a new waiting period or start a new measurement period.
Eligibility for group coverage also directly affects the question of when someone must be offered coverage through COBRA. To be COBRA eligible, the employee must experience a COBRA triggering event (which in the furlough situation, could be a reduction of hours) AND a loss of eligibility for group coverage. Although the employee would be experiencing a reduction in hours (albeit temporarily), if the employee here would continue to be eligible for group coverage, he or she would not lose eligibility for coverage. So COBRA would not need to be offered. In other instances, we have seen a longer furlough that caused a loss of eligibility, such as when the employee was not working the requisite hours of service to be eligible (a requirement sometimes imposed by the carrier). This gets back to the idea of clearly outlining eligibility terms in the plan document--perhaps the employer will want to consider a limit to continuing eligibility for a furloughed employee (or any employee on a leave of absence, for that matter). But that would be up to the employer to outline in the plan document.
There are many moving parts to designing a compliant furlough or leave plan, so employers should consult with outside counsel for guidance on one that best serves their needs.