Employee Benefits During Military Leave: Part 1
When it comes to military benefits, it is important to understand that virtually every major branch of military service and its reserve counterparts are covered under the Uniformed Services Employment and Reemployment Rights Act (USERRA). This includes the Army Reserve, Navy Reserve, Marine Corps Reserve, Air Force Reserve and Coast Guard Reserve (including reservists on two-week annual tours). Unlike other employment laws, there is no minimum number of employees required for coverage. Covered employees do not include independent contractors.
USERRA covers the following additional activities:
� Active duty.
� Active duty for training.
� Initial active duty for training.
� Full-time National Guard duty.
� Examination to determine fitness for duty.
� Voluntary or involuntary service.
Employers are required to post a notice of USERRA rights for military employment and re-employment in the workplace.
Steps to Take Prior to the Employee's Departure
Step 1: Determine if the employee is covered currently under your company's health insurance plan.
If the employee currently is covered under the company health insurance plan, you must make arrangements for continuing the coverage. In addition, discuss how the employee's premiums will be handled. If your company pays for the employee's share of insurance premiums while the employee is on medical leave, the employer also is required to provide the same benefit to the employee on a military leave of absence.
Employers are required to continue the health benefits as follows:
� Absences of 31 or more days. The employee may elect to continue coverage for up to 24 months or for the period of military service (including the time period allowed to reapply for employment), whichever is shorter. As with COBRA, the employee may be required to contribute up to 102 percent of the full premium. Upon reinstatement, the employee must be reinstated immediately into the health plan without any waiting periods or pre-existing condition exclusions.
� Absences of less than 31 days. The employee is entitled to coverage under the health benefits plan as if he or she were employed continuously. The employee continues to pay the employee's share of the premium only.
When it comes to medical flexible spending accounts, the HEART Act allows military reservists who are called to active duty to receive distributions from unused funds in their health care flexible spending accounts (FSAs) without penalty. The law also allows the reservists not to forfeit the money under the "use it or lose it" rules that generally apply to cafeteria benefits plans.
Step 2: Determine what compensation the employee may be entitled to during leave and any additional benefits your company may want to provide.
Supplemental or differential income. Although they are not required to do so, employers may provide supplemental or differential income. Differential wage payments made to an individual on active duty for more than 30 days are subject to income tax withholding, but not to social security and Medicare (FICA) or unemployment tax (FUTA). You may want to consider limiting the duration of the supplemental pay considering that some employees may be away for years. Finally, according to the Fair Labor Standards Act (FLSA), deductions from salaries for a partial week due to military leave are not permissible because they violate the salary basis test for exempt employees. However, an employer may offset any amounts received by an employee occasioned by temporary military leave against the salary for a particular week.
Paid time off (PTO), vacation and sick leave. Employers can allow, but cannot require, employees to use their paid time off or vacation benefits for military-related absences. Regarding paid-leave accruals, USERRA requires that if an employer typically allows employees on leave of absence to accrue paid time off, then employees on military leave also are entitled to accrue paid time off.
An employee is not entitled to use sick leave that accumulated during the period of employment unless the employer allows other employees to use sick leave for any reasons or allows similarly situated employees on leaves of absence to use accrued or sick leave.
Pension contributions. Employees are entitled to all accrued pension benefits they would have received had they continued to be employed. This applies to defined-benefit pensions, defined-contribution plans and profit-sharing plans, as well as single-employer and multi-employer plans. There is no requirement for the employer to continue to make contributions to the employee's 401(k) plan while the employee is deployed on military service. Furthermore, no later than 90 days after the date of re-employment, the employer must make up any contributions attributable to the employee's period of service "unless it is impossible or unreasonable to do so, and then the employer must make the contributions as soon as practicable."
Likewise, employees can make up their 401(k) plan contributions over a period of time equal to three times their periods of service or five years, whichever ends first. The employer is obligated to make matching contributions based on these catch-up contributions. Also, an employee on active duty may designate an individual, such as a spouse with power of attorney, to authorize changes in investment allocations, participant loans and hardship withdrawals to the 401(k) or other defined contribution plan.
The vesting of employment rights occurs on re-employment. This means that if the employee does not seek to be re-employed by the employer, then the employer is not responsible for those obligations.
It may be helpful to summarize how the employee's benefits and compensation will be handled during his or her absence in a letter before the employee departs.
SESCO Management Consultants is available to assist with your human resource issues. You may contact us by phone at 423-764-4127 or by email at firstname.lastname@example.org .