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How to Manage Employee Benefits During Leaves of Absence

Contributor: Evita Lara, HR Consultant

October 20th, 2023 | 7 min. read

By Tony Calavitta

Do you struggle managing leaves of absence? If so, you're not alone. In fact, 40% of large employers and 27% of small employers outsource their leave management.

When you think about it, this statistic should not be surprising. Considering all the rules and regulations for leaves of absence as well as the effect they have on employee compensation and benefits, being in charge of leave management is not for the faint of heart.

Here at Combined, we understand that and want to make handling the intricacies involved in leave management a less daunting task.

In this article, leave management is the name, and employee benefits is the game – it will cover the fundamentals of leave, how to coordinate employee benefits during periods of leave, and why doing so is critical for business operations. By reading it, understanding how to navigate employee benefits during breaks from work will be a breeze.

What is a leave of absence?

Understanding the what and why of leaves of absence is the first step in managing them effectively.

A leave of absence is a designated period when an employee is permitted to be away from their workplace.

This time away can be either paid or unpaid, depending on the type of leave and the employer's policies. Leaves can be planned, such as maternity or paternity leave, or unplanned, like sick leave or emergency family leave. They can be short-term—lasting a few days—or extend over several months.

Mandatory vs. voluntary leaves

The categorization of leaves as either mandatory or voluntary is an essential aspect of leave management. Knowing the differences between the two can help you maneuver the complexities of labor laws, employee benefits, and workplace dynamics.

Here's a detailed look at what each type entails.

The non-negotiables: Types of mandatory leaves

Mandatory leaves are those that are required by law or are non-negotiable due to specific circumstances. These leaves are often protected by legislation, meaning that the employee has a legal right to return to their job once the leave period is over.

Examples include:

Medical Leaves: These are often covered under the Family and Medical Leave Act (FMLA) or similar state laws. They can include leaves for serious health conditions, childbirth, or caring for a family member with a serious health condition.

Military Leaves: Under the Uniformed Services Employment and Reemployment Rights Act (USERRA), employees have the right to take leaves for military service and return to their jobs afterward.

Jury Duty: Most states require employers to allow employees time off for jury duty, although the employer is not always required to pay the employee during this time.

Workers' Compensation: If an employee is injured on the job, they are usually entitled to time off for recovery, often with some form of wage replacement.

The electives: types of voluntary leaves

Voluntary leaves are those that are not required by law but are offered by the employer as a part of the benefits package or workplace culture. These leaves are generally at the discretion of the employer.

Examples  include:

Sabbaticals: Extended periods of time off, often unpaid, for personal or professional development.

Personal Leaves: Time off for personal reasons that do not fall under any legally protected category. These are entirely at the employer's discretion and are often unpaid.

Educational Leaves: Some companies offer time off for further education or training, which may or may not be paid.

Paid vs. unpaid leaves

The distinction between paid and unpaid leaves of absence is more than just a matter of employee compensation; it's a complex issue that intersects with legal compliance, workforce management, and employee satisfaction. Understanding the nuances can help employers make informed decisions that benefit both the organization and its employees.

The perks: Types of paid leaves

Paid leaves are those for which employees continue to receive their regular salary or a percentage of it.

These often include:

Vacation Days: Allocated based on company policy and sometimes accrued over time.

Holidays: Federal or state-recognized holidays, often outlined in the employee handbook.

Sick Leave: Time off for medical appointments or illness, the specifics of which can vary by jurisdiction and company policy.

Parental Leave: Some companies offer paid maternity and paternity leaves, although this is not federally mandated in the United States.

Bereavement Leave: Time off due to the death of a close family member, often paid.

The pauses: types of unpaid leaves

Unpaid leaves are periods during which employees are not working and not receiving their regular salary.

These can include:

Extended Medical Leave: Beyond what is covered by paid sick leave or short-term disability.

Unpaid Family Leave: Time off for family care that exceeds paid allowances.

Personal Leave: A catch-all category for time off that doesn't fit into other types of leave, such as a long trip or a personal project.

Religious Observance: Time off for religious holidays or pilgrimages that are not part of the standard holiday calendar.

How to effectively manage employee benefits during leaves of absence

Navigating the complexities of employee benefits during a leave of absence is a critical responsibility. Not only is it a matter of legal compliance, but it also plays a significant role in employee satisfaction and retention.

Continuation of group health benefits

One of the primary concerns during a leave of absence is the continuation of group health benefits.

Under federal laws like the Family and Medical Leave Act (FMLA), and state-specific regulations such as the California Family Rights Act (CFRA), employers are generally required to continue providing health insurance benefits.

For instance, under CFRA, if an employer typically covers health insurance premiums, they must continue to do so during the leave period. Similarly, during a leave under the Americans with Disabilities Act (ADA), employers are obligated to maintain an employee's health insurance benefits, just as they would for other employees on similar types of leave.

Employer-provided leaves and benefit plans

For leaves that are unique to your organization, the continuation of benefits usually hinges on the fine print in your employee benefits plan.

It's crucial for employers to clearly outline in written plan documents how long an employee can be on unprotected leave before their health benefits may be terminated. This ensures that the rules are applied consistently across the board, reducing the risk of legal complications. It also provides a clear roadmap for employees, helping them plan their leaves more effectively.

Premium payment obligations

It's highly recommended to have a written plan and agreement in place to outline premium payment responsibilities.

For example, during leaves of absence, employers that have been covering the full cost of an insurance premium are obligated to continue making those payments. On the other hand, if employees have already been contributing all or a portion of their premium, the continuation of their benefits is dependent on them maintaining these payments.

In the case of a premium structure with an employee contribution to the premium, employers are obligated to keep the coverage active as long as these payments are made by or on behalf of the employee.

However, employers can cancel coverage if payments are overdue by more than 30 days unless otherwise stated in company policies. This is a delicate issue that requires careful handling. Employers should communicate clearly and promptly about premium deadlines, and perhaps even offer reminders. Failing to do so can result in the loss of coverage for the employee and a subsequent legal headache for the employer.

The Department of Labor (DOL) provides specific guidelines on how to handle such situations, and employers should familiarize themselves with these procedures to ensure compliance.

Reinstatement of benefits and position

Generally, employees returning from leave have the right to their original or an equivalent job, complete with the same pay and perks. This is especially important under laws like FMLA.

Employers should prepare for this reinstatement by keeping the position open or having a temporary replacement that can easily be transitioned out. It's also important to reinstate any lapsed benefits immediately upon the employee's return, to maintain trust and satisfaction.

Why managing employee benefits during leaves IS a (really) big deal

Managing leaves isn't just about crossing t's and dotting i's – it's a linchpin for organizational success. The way you handle leaves can have far-reaching implications, from legal compliance to employee satisfaction and even your company's bottom line.

Here's why it's so crucial.

Legal compliance and risk mitigation

Failing to properly manage leaves can lead to a legal minefield, complete with hefty fines and potential lawsuits.

Previously mentioned laws such as the Family and Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA), and state-specific regulations like the California Family Rights Act (CFRA) have stringent guidelines on benefit continuation. Non-compliance can tarnish your company's reputation and lead to costly legal battles.

Therefore, it's essential to stay updated on relevant laws and ensure your policies are in line with them.

Financial implications

Poorly managed leaves can have a ripple effect on your company's financial health.

For instance, if health insurance is wrongly terminated during an employee's leave, the cost of retroactively reinstating it can be significant. Additionally, the cost associated with employee turnover due to dissatisfaction can far outweigh the expense of maintaining their benefits during a leave.

Thus, effective leave management is not just an HR issue but a financial strategy.

Employee satisfaction and retention

Benefits are a significant part of an employee's compensation package, and how you manage these during leaves can significantly impact employee satisfaction.

Employees are more likely to stay with a company that takes care of them during pivotal life events, whether it's a medical emergency, maternity leave, or a sabbatical. Properly managed benefits can be a powerful tool for employee retention.

A satisfied employee is not just a retained one but also a more productive and engaged member of your team.

Workplace morale

The way you manage leaves and associated benefits sets the tone for your organizational culture.

Consistent and fair management of benefits during leaves sends a positive message to the rest of your workforce. On the flip side, perceived unfairness or inconsistency can lead to a toxic work environment, affecting not just the employee on leave but the entire team.

Therefore, transparency and fairness in leave policies are essential for maintaining high workplace morale.

Competitive edge in talent acquisition

In today's competitive job market, potential employees consider not just salary but the entire benefits package and workplace culture.

A company that is known for its fair and comprehensive management of employee benefits—even during leaves—stands out as an employer of choice.

This gives you a competitive edge in attracting top-tier talent, making your company a magnet for the best in the industry.

Need help with leave management? Look no further!

If you've made it this far, chances are you're grappling with the complexities of managing employee benefits during leaves of absence.

By diving into this article, you've armed yourself with the essential knowledge to navigate this intricate landscape. You've learned about the different types of leaves, how to coordinate benefits during these periods, and why getting this right is a game-changer for your business.

Still feeling a bit overwhelmed? Don't worry! Our team of HR and benefits experts at Combined are just a click away, ready to guide you through any uncertainties you may still have.

Want to dive deeper? For more insights, check out our Learning Center where you’ll find other helpful articles, videos, and webinars.


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This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.