Can an Employer Collect Health Insurance Premium Payments While an Employee is on FMLA Leave?

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Many employers continue to pay an employee’s share of health insurance premiums while the employee is on FMLA-protected leave, with the expectation that the employee will reimburse the employer upon returning to work. However, if the employee does not return from leave, the employer may face challenges in recovering the employee’s unpaid share of the premiums.

The FMLA regulations permit employers to use several methods to collect an employee’s share of health insurance premiums while the employee is on FMLA leave. These methods include:

• Payroll deduction:
  • If the employee continues to receive pay from the employer during FMLA leave, the employer may deduct the employee’s share of the health insurance premium from the employee’s pay.
  • The employee may elect to pay premiums in advance of the leave, which could allow the payments to be made on a pre-tax basis. However, an employer may not require an employee to prepay premiums; this option must be elected by the employee.
• Direct payment: If the employee’s leave is unpaid, the employer may require the employee to make premium payments directly to the employer or the insurance carrier. The employer may not charge an additional administrative fee, and the amount required must be the same premium the employee would have paid if actively working.
  • The employer may require payments to be made at the same time the payroll deduction normally would have occurred.
  • The employer may require payments to be made on the same schedule used for COBRA premium payments.
  • The employer may establish another reasonable payment schedule, provided that the employee is not required to prepay premiums.
  • The employer and employee may establish an arrangement for premium payments when the employee is receiving payments from a third-party during leave, such as workers’ compensation or short-term disability insurance benefits.

Regardless of the payment method selected, employers should ensure that employees on non-FMLA leaves of absence are treated consistently and that similar premium payment practices are applied to comparable situations.

Even when a payment schedule has been established in advance, an employee may fall behind on required premium payments. In these circumstances, an employer cannot immediately terminate the employee’s health insurance coverage. If a premium payment is more than 30 days late, the employer may terminate coverage, provided that the required notice procedures are followed:

• Written notice: The employer must provide written notice to the employee regarding the overdue premium payment and the potential termination of coverage.
• 15-day notice period: The notice must provide the employee with at least 15 days’ notice before coverage ceases.
• Specific termination date: The 15-day notice period must begin after the date of the notice, and the notice must specify the date on which coverage will terminate if the overdue premium is not received.

If all premiums are not paid, employers may be able to recover outstanding benefit costs incurred while an employee is on FMLA leave. If the employee returns to work, the employer may establish a payment plan to allow the employee to reimburse the outstanding premiums over time.

If the employee does not return to work following FMLA leave, the employer may attempt to recover the outstanding balance. Depending on the circumstances, this may include the employee’s share of the premiums and, in some situations and with certain plan designs, the employer’s share of the premiums as well. However, recovering an outstanding balance can be challenging when the employee is no longer receiving a paycheck from which payments can be deducted.

If an employer terminates an employee’s health insurance coverage because the employee failed to make required premium payments during FMLA leave, the employee must be reinstated to the same coverage upon returning from leave. The employee cannot be required to satisfy a new waiting period or otherwise requalify for coverage.