How to Collect Health Insurance Premiums During an FMLA Leave

We are very thankful to Tim Murphy from Skoler, Abbott, & Presser, P.C. for being our guest writer this week.  The question about health and other insurance premiums during FMLA and other types of leaves comes up often, and I’ve found Tim to be an excellent partner in sorting through this complex issue.  Tim’s contact information is contained in the links below.  Please reach out to him if you have questions on this or other labor or employment law matters.

Skoler-Abbot Website

Tim’s Linked In Profile

As you probably know, during any FMLA leave, employers must maintain the employee’s group health plan coverage on the same basis as if the employee never took the leave. (29 CFR §825.209).   This means that any share of the premiums which had been paid by the employee before FMLA leave must continue to be paid by the employee during the FMLA leave. (29 CFR §825.210(a)). When the employee uses paid time off (vacation, etc.) during the FMLA, the employee’s share of premiums must be paid by the method normally used, usually payroll deduction.

Unpaid FMLA Leave

However, collecting premiums may only become a problem when the FMLA leave is unpaid, as it often is. In that case, the employer may require employees to pay their share of premium payments in any of the following ways:

(1) by payroll deduction;

(2) on the same schedule as payments are made under COBRA;

(3) prepaid pursuant to a cafeteria plan at the employee’s option;

(4) consistent with the employer’s existing rules for payment by employees on leave without; or

(5) another system voluntarily agreed to between the employer and the employee.

The employer must provide the employee with advance written notice of the terms and conditions under which these payments must be made. (See §825.300(c)). An employee who is receiving payments as a result of a workers’ compensation injury must make arrangements with the employer for payment of group health plan benefits when simultaneously taking FMLA leave.

When Employees Fail to Pay Their Premiums

An employer’s obligations to maintain health insurance coverage cease under the FMLA if an employee’s premium payment is more than 30 days late.

To drop the coverage for an employee whose premium is late, the employer must give written notice that the payment hasn’t been received at least 15 days before coverage is to cease, advising that coverage will be dropped on a specified date at least 15 days after the date of the letter unless the payment has been received by that date. So coverage may be terminated at the end of the 30-day grace period, if the required 15-day notice has been provided.

Of course, all other FMLA obligations would continue, like job reinstatement.

If coverage lapses because an employee has not made required premium payments, upon the employee’s return from FMLA leave the employer must still restore the employee to coverage/benefits equivalent to those the employee would have had if leave had not been taken and the premium payment(s) had not been missed, including family or dependent coverage.

If the employee fails to return to work

An employer may recover its share of health plan premiums during a period of unpaid FMLA leave from an employee if the employee fails to return to work after the employee’s FMLA leave entitlement has been exhausted or expires. But watch out because there are several exceptions to this.

Sometimes employers maintain other benefits, e.g., life insurance, disability insurance, etc., by paying the employee’s (share of) premiums during periods of unpaid FMLA leave. In that case, the employer is entitled to recover only the costs incurred for paying the employee’s share of any premiums whether or not the employee returns to work.

As a practical matter, it may be difficult to collect money from a former employee. The best approach is to minimize your losses by keeping an eye on non-payments and terminating coverage before the losses get too big. The FMLA can be tricky, so you should consult with your labor and employment expert before you get too far.

Showing 4 comments
  • Elizabeth

    Are there companies that will handle the communication with employee about premiums due, timing of premiums, collection of premiums and termination of coverage,

    • Pete Miller

      Hi Elizabeth. There are definitely companies that can help with a host of HR-related tasks. If you’d like some details, please call me at (866) 724-0008.

  • Brittany Lyons

    When an employee is on FMLA and pays for pre-tax deductions externally, should the employer update the employee contributions in their payroll system for W2 purposes (Box 12)?

    • Pete Miller

      Hi Brittany. Sorry for the delay in response. I didn’t see your question.

      This information came from our compliance department:

      I think the question is whether an employee can make pre-tax contributions towards the cost of benefits while on an FMLA leave of absence. Eligible employees can participate in the POP (which is to say, they can make pre-tax contributions) during periods of paid leave.

      If the leave is unpaid, of course there is no mechanism for pre-tax contributions. In that case, the contributions would need to be made on a post-tax basis (e.g., via check) according to the employer’s leave policy.

      Remember that an employer is required to continue group health insurance during periods of FMLA leave on the same terms and conditions (e.g., at the same contribution levels) as coverage would have been provided if the employee had not taken leave.

      As to W-2 cost of coverage reporting, the figure reported in Box 12 of the Form W-2 includes both the portion paid by the employer and the portion paid by the employee. Whether employee contributions are made pre-tax or post-tax doesn’t affect the figure reported in Box 12.

      Hope this helps!

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