As businesses and HR specialists navigate the disruption brought on by the pandemic, keep in mind these key points regarding employee benefits in the time of COVID-19.
1. Medical Insurance. If an employer has 50 or more employees (and is a large employer under the ACA) it is required to maintain employees on the group medical insurance plan during its “measurement period,” even if work hours are reduced. Any employee co-payments for medical insurance premiums may continue through ongoing payroll deductions.
If any employee goes onto short-term unpaid leave, his or her obligation under the employer’s plan to co-pay medical insurance premiums still applies. Arrangements should be made to collect the employee’s co- payments in advance, during the unpaid leave, or when the employee returns to work.
Any employees who lose medical coverage because they leave the company or are on an unpaid leave must receive a COBRA notice.
2. Essential Health Benefits. Essential health benefits under Massachusetts group health plans must now include telemedicine coverage for COVID-19 testing and treatment at no extra cost to the employee. The IRS has stated that group health plans with a high deductible may waive or limit the out-of-pocket costs to employees for COVID-19 testing and treatment without losing their high deductible status. These changes are intended to encourage employees to get tested and treated, as needed during the emergency.
3. HIPAA. HIPAA privacy rules do not apply if an employee advises their employer of a medical condition. For example, if an employee advises HR that he, she, or a family member has a contagious illness such as COVID-19, that information is not protected health information under HIPAA. However, under the ADA, the employer would have an obligation to let the individual’s coworkers know that they may have been in contact with someone who is now ill. The name of the ill individual should be kept confidential.
4. Families First Coronavirus Response Act. A new federal law in effect this year only, beginning on April 2nd, provides some paid leave to working parents caring for their children under age 18. Employers with under 500 employees must provide the leave to part- or full-time employees who have been employed at least 30 days, cannot work or telework, and need to take care of children whose daycare centers, other paid childcare, or schools have closed because of the COVID-19 emergency.
Employers that are healthcare providers or emergency responders can elect out of this new paid leave. The Department of Labor has the authority to exempt healthcare providers and businesses with under 50 employees.
Except as otherwise provided under #5 below, the employer is not required to pay wages during the first 10 days of the leave, but must allow employees to use PTO during that period. After the first 10 days, for the remainder of the FMLA limit of 12 weeks, the employer must pay at least 2/3 of the employee’s regular wages (capped at $200 a day or $10,000 in aggregate). If an hourly worker’s schedule varies, the employer uses the employee’s average hours over the 6 months prior to leave to determine pay during the leave. A tax credit will be available to the employer to recoup the cost of this leave.
5. Emergency Paid Sick Leave. During the COVID-19 emergency, employers with under 500 employees must generally allow up to 80 hours paid medical leave for employees who must address COVID-19 care for themselves or family. This is in addition to other leave and applies to all part- and full-time employees of the employer without a waiting period. Employers of healthcare providers and emergency responders can elect not to allow those employees to take this leave.
Pay during the leave is capped at $511 per day or $5,111 in aggregate for a full-time employee. Part-time employees are entitled to their average pay for two weeks. The employer may retrieve the cost of paid leave through tax credits.
6. FMLA. Unpaid leave of up to 12 weeks under FMLA still applies for employees who are absent due to their own or a family member’s illness, and the special benefits (items 4 and 5, above) do not apply. The employee’s job is protected upon return from FMLA and emergency leave.
7. DCAP. Employees may wish to make prospective elections out of the dependent care assistance program if their need for childcare has changed as a result of a change in the cost or their employment status. We expect that the current COVID-19 emergency also qualifies as a reason for employees to change future DCAP coverage elections.
8. 401k. 401(k) deferrals from payroll should be processed as usual, keeping in mind the quick turnaround time required by law from the date of payroll to deposit into the trust under the plan. Employees may wish to stop prospective 401(k) deferrals, take loans or hardship distributions during the pandemic.
Employees who are on unpaid leave for less than a year may suspend loan repayments until they return to work. Upon return, the repayment amounts would be increased to reflect the period of non-payment.
Hardship distributions are available to prevent eviction or foreclosure on the employee’s primary residence or to pay for medical costs among other reasons.
Employers maintaining retirement plans with discretionary profit sharing or matching contributions may wish to diminish or stop those contributions this year. Employers that maintain safe harbor 401(k) plans can suspend matching and non-elective contributions during the emergency if it is suffering economic losses, but must provide employees 30 days advance notice. It must also run non-discrimination testing for the non-safe harbor plan year and amend the plan to reflect the change.
About the Author: Evelyn Haralampu
Evelyn Haralampu is a partner at Burns & Levinson. She specializes in assisting businesses, executives, and non-profit and governmental organizations in designing employee benefits programs and executive compensation to help clients meet their objectives, while saving and deferring costs through tax efficiencies. Evelyn has served on the ABA’s Subcommittee on Government Submissions, recommending regulatory policies to the IRS, and is a member of the Tax Council of the Massachusetts Bar Association, which influences the development of tax legislation in the Commonwealth. She can be reached at email@example.com or 617.345.3351.