What Happens to Employee Benefits During a Furlough?


Furloughs or temporary layoffs can affect benefits eligibility. Be prepared to answer employee questions, or amend your plans, before making an announcement about unpaid time off. 


Full Time or Part Time Status

Check to see if your plan requires full time status for eligibility. Most health benefits plans are written to cover only full time employees. While this requirement may be in many plans too often employers don’t have a corresponding definition of full time status. Write the clarification before the inquiries pop up.


Whether or not you have a good description of full and part time status you can decide to include an exception or apply a distinct standard during a temporary layoff. “Eligibility for medical, dental and vision benefits will not be affected by a temporary layoff of up to twenty days,” could work for you. Consider including a potential end date for coverage when temporary layoffs continue for more than a month. Clear communication and understanding will avoid additional stress in a tough time.


The big questions will be about health benefits but don’t forget potential affects on vacation, sick leave, disability, holiday pay and even life insurance. If you close during the week of July 4th will employees be paid for the holiday?


1,000 Hours

401(k) plans must consider 1,000 hours worked during a plan year as a year of service for participation. Employers set initial entry dates. This doesn’t mean you have to apply the same standard for all other benefits.


Employee Contributions

If employee contributions are taken out of pay to cover the costs of health plans how will this money be collected when there are no paychecks?  Some employers take larger deductions before and after the time off while others request payment on a pre-set schedule.


Remember any voluntary benefit plans that are offered to employees. Providers can be a valuable source for advice on collecting these payments. They may be willing to make some changes during a temporary layoff and have their representatives contact employees directly.


COBRA Triggers

Even temporary furloughs can extend beyond the time you are willing to continue health benefits coverage for employees. Employees don’t have to be terminated or permanently laid off to be eligible for COBRA. Make sure this is clear in your policy and communications when the layoff starts.  Can you continue to pay for health benefits when a one month layoff extends into two or three?


This doesn’t mean employees will lose coverage. Once the employee returns to work they can be reinstated in the plans after the layoff. And many laid off employees will be eligible for the ARRA COBRA subsidies that help cover the cost.


Identify both your budget to continue benefits and administrative considerations when crafting this policy. Don’t automatically say you will cover employees for 45 days if it leaves you figuring out COBRA costs and billing for partial months. Look at the plan, billing cycles and administrative requirements before setting this schedule. This is another good reason to use an outside service for COBRA administration.


Furloughs and temporary layoffs are not easy. Check with brokers and plan providers to clarify eligibility or to take the necessary steps to make any changes. When you’re trying to save money, and potentially your business, good planning for employee benefits decisions should be part of the process.