A Reminder Regarding Offers of Coverage to Employees on Unpaid Leave
Chris Allesee
Earlier this week, the American Bar Association released the transcript of its annual joint committee on employee benefits meeting with the IRS, and (no surprise), there were a few questions related to the Affordable Care Act. The meeting dates back to May, so the transcript does not break new ground, but it does include a good reminder regarding offers of coverage to employees on an unpaid leave of absence.
The ACA regulations allow employers to treat an employee as a new employee for the purposes of offering health coverage if the employee goes 13 continuous weeks without an hour of service. This includes an unpaid, non-FMLA leave of absence. Many employer handbooks address the potential for extended leaves of absence for business and legal reasons, so it is not an uncommon situation. The point the IRS emphasizes in the transcript is that the employee must actually return from the unpaid leave of absence before they may be treated as a new employee. If you use the monthly measurement method to determine full-time status, this distinction has little effect; unpaid, non-FMLA leave does not count as hours of service towards the 130 hour per month requirement, so you may not have to offer coverage for some or all of the months the employee is absent.
However, if you use the lookback method to determine full-time status, an employee who was determined to be full-time and offered coverage during a stability period must continue to be offered coverage through the end of the stability period while on an unpaid leave, even after 13 continuous weeks. Effectively, employees on an unpaid leave are still employees, and will receive the benefit of the stability period until they terminate employment or average less than 30 hours per week during a standard measurement period. When the employee returns to work after more than 13 continuous weeks, then an employer may elect to consider the person a new employee and either offer coverage subject to any applicable waiting period (if expected to be full-time) or start the initial measurement period (if returning to a variable hour schedule).
These rules can be tricky, and it can be easy to overlook or lose track of employees on an extended leave of absence. But, with the first round of IRS reporting due next January, now is a good time to make sure you are appropriately handling offers of coverage for these employees.
Earlier this week, the American Bar Association released the transcript of its annual joint committee on employee benefits meeting with the IRS, and (no surprise), there were a few questions related to the Affordable Care Act. The meeting dates back to May, so the transcript does not break new ground, but it does include a good reminder regarding offers of coverage to employees on an unpaid leave of absence.
The ACA regulations allow employers to treat an employee as a new employee for the purposes of offering health coverage if the employee goes 13 continuous weeks without an hour of service. This includes an unpaid, non-FMLA leave of absence. Many employer handbooks address the potential for extended leaves of absence for business and legal reasons, so it is not an uncommon situation. The point the IRS emphasizes in the transcript is that the employee must actually return from the unpaid leave of absence before they may be treated as a new employee. If you use the monthly measurement method to determine full-time status, this distinction has little effect; unpaid, non-FMLA leave does not count as hours of service towards the 130 hour per month requirement, so you may not have to offer coverage for some or all of the months the employee is absent.
However, if you use the lookback method to determine full-time status, an employee who was determined to be full-time and offered coverage during a stability period must continue to be offered coverage through the end of the stability period while on an unpaid leave, even after 13 continuous weeks. Effectively, employees on an unpaid leave are still employees, and will receive the benefit of the stability period until they terminate employment or average less than 30 hours per week during a standard measurement period. When the employee returns to work after more than 13 continuous weeks, then an employer may elect to consider the person a new employee and either offer coverage subject to any applicable waiting period (if expected to be full-time) or start the initial measurement period (if returning to a variable hour schedule).
These rules can be tricky, and it can be easy to overlook or lose track of employees on an extended leave of absence. But, with the first round of IRS reporting due next January, now is a good time to make sure you are appropriately handling offers of coverage for these employees.