Judy Kamens Compliance Specialist View Bio

EMPLOYEE COMPENSATION

  • Employees are generally not required to be paid for time spent not working.
  • Exceptions apply to exempt employees who work for part of a workweek and employees eligible for paid leave.
  • Employers may provide paid leave beyond what is required.
  • Employees may be eligible for expanded unemployment benefits.

EMPLOYEE BENEFITS

  • Whether employees remain eligible for benefits while not working depends on the terms of the plan.
  • Benefit eligibility may also depend on the reason the employee is not working.
  • State or carrier guidelines may provide additional flexibility for group health plans.

LINKS AND RESOURCES

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As business closures increase due to the COVID-19 pandemic, employers are faced with questions about compensation and health benefit coverage for their employees. Government relief measures may provide compensation for businesses and individuals in certain situations. In other cases, existing rules on employee rights will apply.

Paid leave may be required for some employees by federal or state law. Also, some state insurance regulators are requiring insurance carriers to provide policyholders with additional flexibility regarding premiums and coverage, and some carriers are making similar changes independent of state requirements.

This Compliance Overview provides a summary of the issues that employers may encounter when terminating or suspending employment due to COVID-19.

Furloughs

A furlough is a way for employers to deal with a reduction of work. During a furlough, employees remain on the employer’s payroll but their hours of work are reduced. Typically, employers establish furloughs by asking employees to work fewer hours or by asking them to take unpaid time off.

Employers should be careful when furloughing employees who are exempt from the Fair Labor Standards Act (FLSA). The FLSA requires that exempt employees receive their weekly salary regardless of the number of hours they work during the week. However, the FLSA does not require employers to compensate exempt employees for any week in which they do not perform any work, so employers may elect to furlough exempt employees by reducing their work a week at a time.

Whether employee benefits are provided during furloughs will depend on the terms of each plan. In many cases, employees must work a specific number of hours to remain eligible for benefits. However, in some cases, furloughs may be treated differently than other types of hours reductions. During the COVID-19 pandemic, some insurance carriers and state regulators are providing additional flexibility to help employers maintain coverage for employees on furlough.

Layoffs

Layoffs can be structured in several different ways. A layoff is typically a temporary separation from payroll. Most often layoffs take place when there is not enough work for employees to perform. Employers use layoffs, rather than terminations, because they believe the conditions leading to the reduction in work will change. Employers that use layoffs generally intend to recall employees who are laid off once enough work becomes available. However, layoffs can also be permanent.

As with furloughs, whether a laid-off employee remains eligible for any employee benefits will depend on the terms of each plan. If employment is terminated, eligibility will generally also be terminated, subject to any continuation coverage requirements. Employees may be able to collect unemployment benefits if they meet their state’s eligibility requirements.

Continued Health Care Coverage

Employers may continue active group health care coverage for laid-off employees or furloughed employees if this is allowed by the terms of their health plan. For example, a health plan may indicate a minimum number of hours employees must work to be eligible for coverage and instructions for how to account for short-term leaves of absence, whether paid or unpaid.

Employers may have the option of amending their plan’s terms and conditions if they do not allow for a continuation of benefit coverage. However, if applicable, employers should check with their third-party insurer or administrator before amending the terms and conditions of their health plans. Employers that expand coverage outside the terms and conditions of the plan without consent from the insurer (or stop loss carrier) face significant financial exposure.

In addition, during a layoff or furlough, employers may choose to pay the employee share of premiums, in full or in part. Employers that pay for employee premiums will need to comply with any applicable cafeteria plan rules and nondiscrimination requirements to ensure favorable tax treatment.

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