Benefit Premiums

Katie · July 2001

My company, like the majority of others, pays a large portion of the employee's monthly health benefit premiums. The employee pays a small portion for single coverage. If an employee terminates, a pro-rated amount of the company paid portion is deducted from their final paycheck. Reason given is because the company pays their portion at the first of the month. If an employee resigns, the company should be able to re-coop a portion for the remaining days in the month that the employee will be covered, but no longer employed.

I am relatively new at my place of employment as well as being responsible for benefits administration and have never heard of this practice before. Is this a normal practice? Please help.

Don Avery · July 2001

Aside from whether your practice is legal (that would depend on the W&H laws of the State where the employee works) I would guess that the cost in labor to: calculate, monitor the deduction, and explain it to terminating employees, would far outweigh the amount of dollars recovered. Another negative is the appearance of giving the employee a final kick for having the audacity to leave.
Just out of curiosity, do you find that most employees leave at the end of the month?

Katie · July 2001

Thank you for your response.....I will research with the DOL to get the legatities of this policy.....to answer your question, I cannot determine a pattern that shows employees leaving at any particular time in the month.

Down_the_Middle · July 2001

I agree with Don's response. One possible solution is to specify in your health insur plan document that coverage ceases on the last day of employment (similarly to life insurance). This will bring other issues such as commencing COBRA in the middle of a month and at what point do you refund employee deductions, but it will serve to d/c coverage with termination date.

Blanche · July 2001

My experience has always been that by timely notifying the health insurance provider of the employee's termination date, I am sure to receive credit for the balance of that month's premium. This of course is a matter of contract construction, and I would encourage you approach your provider(s) on this matter if it is not addressed in your current service agreement(s). Your practice raises others issues as well, like COBRA compliance & administration. At what point do your exiting employees technically lose coverage?

I would be very careful about what deductions are made against an employee's final paycheck. In MA, this would probably not be an acceptable practice under our Wage & Hours laws because it could be seen as a withholding of earned wages. When your employees enroll in your employer group plans, they are agreeing to accept responsibility for the employee portion of the premium. The employee contribution, then, is an "authorized deduction". Do you obtain their agreement to be held responsible for the employer's portion upon termination, as well? Even this would most likely be invalid in MA, because the Wage & Hour enforcement office interprets the law to bar employers from seeking a waiver from employees that would authorize a deduction from a final paycheck to reimburse for company equipment or some other form of "debt" - like the prepaid employer contribution.

Like Don Avery said, a risk analysis might show that your costs (in admin. labor and vulnerability to a failure to pay wages charge) may be higher under your current practice than they would be if you just let an employee go in peace.

A quick (anonymous) call to your local Wage & Hour enforcement office will give you the best answer in your state.

bsa · July 2001

My current insurance carrier only terminates at the end of the month. It's a cost of doing business. In the past, I have had insurance terminate on the last day worked. IF COBRA is elected, they are reinstated back to the date insurance was terminated.

jriley · July 2001

Another option would be have the employees benefits
effective the first of the month following their date
of hire. then you don't have to get anything back.
(BTW,I have been in benefit for 8 years and have never
heard of such a practice.) Good luck!

Benefit Premiums

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