One of the most heart-wrenching decisions facing many business owners today is reducing payroll. Even with assistance from the federal Payroll Protection Plan, many companies have no other option but to lay-off, fire, or furlough employees. How businesses handle their reduction in force, can significantly impact the future security of their workers and their health benefits.
It is important to understand the distinction between the two, as it also affects how benefits, including health insurance, are handled. In a furlough employees are given leave without pay, but they remain on the payroll. The same is not true for laid-off employees. In a lay-off, employees are terminated without the intention of rehiring, and they are removed from the payroll.
The COVID crisis has increased the number of furloughed employees throughout the country. Insurers and our professional team of employee benefits specialists, have been providing additional guidance to businesses on the best way to handle health plan coverage since the start of the pandemic.
In the past, many companies continued to subsidize health care benefits for furloughed employees; however, they were not obligated to do so. In this current environment, insurers are encouraging this behavior, recommending that coverage extends for a 60 – 90-day period during the furlough, without the need to transition to COBRA coverage. In the case of stop-loss for self-insured plans, most insurers will amend the plan document to include an extension.
Also, HRA and HSA contributions generally continue during a furlough period if the employer extends medical coverage. However, FSA coverage usually ceases during an unpaid leave and the employee is no longer required to make contributions. COBRA is available for an FSA if the account is underspent when the furlough takes place. In some instances, employers may want to continue FSA availability and should work with their benefits specialist to adjust the plan requirements.
Recently, some state insurance commissioners have required insurers to allow employers to maintain healthcare coverage to employees who have been furloughed or are working reduced hours. The Affordable Care Act also imposes penalties on employers who do not offer health insurance to furloughed workers. These penalties apply to employers with more than 50 full time or equivalent workers.
Kirwan Benefits & Investments knows these are trying times for companies of all sizes across all industries. If you have questions about health coverage for your furloughed workforce, please give us a call. We would be happy to discuss the option that is best suited to you and your staff.