When COVID-19 changed our world last spring, companies suddenly found it necessary to be creative with work situations in order to keep business flowing. One of the most immediate benefits offered was working from home. If that wasn’t an option for your business, you may have found it necessary to lay off or furlough employees. Everyone hoped the pandemic would be short-lived, but 10 months later, we are still adjusting to our “new normal.”
Some companies chose to furlough employees rather than take more permanent measures such as lay-offs or RIFs. If your organization chose to furlough, there could be implications and compliance issues with some of your benefit plans, depending on the amount of time those individuals were away from work. Keeping up to date on premium payments isn’t the only thing required to maintain eligibility for some benefit plans.
Review your Summary Plan Descriptions (SPDs) to determine if there is a designated hours requirement. Many plans base eligibility on the average number of hours worked per week. If you have an employee that has been furloughed since September or earlier, that employee may have lost eligibility because his or her average hours per week has dropped below what the plan states. If that is the case, COBRA may be offered.
Another consideration is affordability. Although the employee may have been on your insurance plan and paying the employee’s portion of premiums, he or she may now be in a situation where premiums are no longer considered affordable due to a significantly reduced income (or no income). If premiums are more than 9.78 percent of the employee’s household income, coverage is no longer considered affordable. Most employers have no way of knowing what your employees’ annual income is, so the IRS indicates three safe harbor guidelines that can be used.
- The Form W-2 wages safe harbor (9.78% of Box 1 wages)
- The rate of pay safe harbor (calculated monthly based on 130 hours for hourly employees)
- The federal poverty line safe harbor (determined by the size of the household)
ACA reporting may also be affected. If the employee wasn’t actively employed during a month, be sure to indicate that in your 1095 reporting. Although premiums were paid, a furloughed employee is not actively employed. A list of applicable codes can be found here.
Finally, be sure the appropriate insurance premium amounts are entered in Box 12 of the employee’s Form W-2. If the employee remitted payment by check instead of payroll deduction, those amounts should be updated to reflect the true amount paid for the year.
Other things to keep in mind are leaves of absence and PTO balances. If an employee has been furloughed, eligibility for FMLA may be affected if the required hours have not been worked in the prior year. If this is the case, be sure to consider ADA upon return. Conversely, PTO accruals will be unaffected by a furlough, unless time is determined by hours worked. If your company “reloads” time on January 1, anyone on furlough also is eligible for new PTO.
This is not an all-inclusive listing of things to consider. If you have questions on transitioning into the new year, we are here to help! Please contact the HR Hotline at 866.474.6854 or email us at InfoNow@mranet.org.