Introduction

Navigating employee benefits during a leave of absence can be a complex and challenging task for both employers and employees. Leaves of absence may arise for various reasons, including medical issues, family care responsibilities, military service, or personal matters. During these periods, it is crucial for employers to understand how health and welfare benefits should be administered and maintained and the various compliance issues that arise during the process.

This guide provides a general overview of employee benefits compliance considerations during different types of leave. It explains how factors such as whether the leave is protected or unprotected, paid or unpaid, and the plan’s design can affect an employer’s responsibilities in administering their benefit plans.

Protected Leave vs. Unprotected Leave

Understanding the difference between protected and unprotected leaves of absence is essential for employers in determining their compliance obligations.

Protected leave refers to leave that is safeguarded by federal, state, or local laws. Under protected leave, employees often have certain rights and protections during their absence, such as job security, continuation of benefits and reinstatement rights upon return from the leave. Examples of protected leave include the Family and Medical Leave Act (FMLA), Uniformed Services Employment and Reemployment Rights Act (USERRA) and state-specific medical or parental leave.

Unprotected leave refers to leave that is not specifically protected by federal, state, or local laws. This type of leave is typically granted at the employer’s discretion and is governed by the company’s internal policies. Unprotected leave may be offered after a protected leave has been exhausted. Examples of unprotected leave include personal leave, extended vacation, or educational leave.

Are employers required to maintain an employee’s benefits when they take a leave of absence?

It depends. If an employee is on a protected leave of absence, as discussed above, they will often be entitled to continue at least some of their benefit coverages under the same terms as if they were actively working. In this case, employers will need to refer to the applicable law to determine exactly what protections the employee may have.

Generally, any such mandate that requires an employer to maintain benefits for an employee on a protected leave would only apply to the health care benefits an employee was enrolled in at the start of their protected leave. Employers should review applicable state law to determine whether coverage for any health care or non-health care benefits are required. Many employers will extend other benefits (such as life insurance and disability insurance benefits) to employees on job-protected leaves of absence, consistent with the terms of the applicable plan. Eligibility requirements for these other benefits (outside of health care benefits) are governed by the terms of the policy or plan.

Employers are not generally required by law to maintain health (or other) benefits during an unprotected leave. Whether an employee maintains eligibility for benefits during unprotected leave is a plan design issue and will depend on the plan’s eligibility language and applicable plan provisions. Employers who design their plans to permit employees on unprotected leave to remain covered by a plan should confirm that insurers (and stop-loss carriers, if the plan is self-insured) are in agreement with the employer’s intended practice and that the terms of the insurance policy or certificate are consistent. This helps to protect the plan sponsor from inadvertently assuming liability for claims payments. If the plan sponsor instead limits eligibility for medical benefits for employees on unprotected leave, they will need to consider implications under the ACA employer shared responsibility provisions discussed in more detail below.

The Family and Medical Leave Act (FMLA)

When discussing protected leaves, many employers must consider rules related to the FMLA, which provides eligible employees up to 12 weeks of unpaid, job-protected leave per year for specified family and medical reasons. FMLA also provides up to 26 workweeks of military caregiver leave during a single 12-month period. Covered employers must maintain an eligible employee’s group health plan coverage during FMLA leave under the same terms as if the employee had not taken leave.¹ Group health plans include employer-sponsored plans providing benefits for medical care, dental and vision care, mental health counseling, substance abuse treatment, prescription drug plans, a health flexible spending arrangement (health FSA), an employee assistance plan (EAP) if it provides medical care, a health reimbursement arrangement (HRA), etc.² Any changes to health benefit plans that apply to active employees must also apply to employees on FMLA leave.³ Employees on FMLA leave must also have open enrollment rights, and plan administrators should be prepared to deliver enrollment materials to those employees on leave. Should an employee choose not to keep their group health plan coverage during FMLA leave, the employer must reinstate the employee at the same coverage level upon their return from leave.⁴

In addition to the requirement to maintain group health coverage, the FMLA mandates that other non-health benefits, such as life insurance, disability insurance, sick leave, vacation, educational benefits, pensions, and retirement or 401(k) plans, must continue during FMLA leave at the same level as they would for non-FMLA leave under the employer’s policies. If an employee chooses to discontinue non health benefits while on FMLA leave, reinstatement of the benefits must be available when the employee returns from FMLA leave without the employee having to requalify for the benefit. These benefits must be continued at the same level as prior to the leave, unless changes to the benefits were made that affected all employees during the employee’s leave.⁵

¹ 29 CFR § 825.209(a)
² 29 CFR § 825.209(b)
³ 29 CFR § 825.209(c)
⁴ Fact Sheet #28A: Employee Protections under the Family and Medical Leave Act
⁵ Id.

Regulatory and Legislative Strategy Group