Paying new employees COBRA payments until she can go on our plan
Rob S
65 Posts
On January 1 we changed our waiting period for benefits to 90 days from 30 days. Now with one of the first employees that we hire, the office manager offered to pay this new employees COBRA premiums until she is eligible for our plan as part of her package to come to work for us.
I think I already know the answer to this first part, but please confirm that that there is nothing legally wrong with doing this (if it is treated as taxable income).
Part 2 - even if this is totally legal, am I wrong in thinking that this should not be done. Even though we just changed our official policy to 90 days, it realistically has become 0 days. This does not look like a unique situation in breaking our policy to me. It is not for an executive position, top sales person, or some other highly recruited position. Are we setting a precident that we will have to follow in the future?
Rob S.
I think I already know the answer to this first part, but please confirm that that there is nothing legally wrong with doing this (if it is treated as taxable income).
Part 2 - even if this is totally legal, am I wrong in thinking that this should not be done. Even though we just changed our official policy to 90 days, it realistically has become 0 days. This does not look like a unique situation in breaking our policy to me. It is not for an executive position, top sales person, or some other highly recruited position. Are we setting a precident that we will have to follow in the future?
Rob S.
Comments
On the other hand, if this was a cost containing measure, your office manager has just erased any cost cutting you may have been able to realize by offering to pay for very expensive COBRA coverage for an employee. Yes, I fear you have set a precedent for future hires. You may want to consider going back to the 30 days.
I agree that 90 days is a long time, and I was a little surprised when that decision was made.
The main reason we went to 90 days was cost. We took a 102% increase on what was already an expensive plan. We have an older workforce and we have had several very large claim and some large pending claims. Like many places, much of our turnover occurs in the first 90 days, so that was a second factor in changing it to 90 days.
Rob S.
Like all compensation, you need to decide what you need to offer to attract and retain good employees, and if a 90 day waiting period still allows you to do that, I don't see any reason to go back to 30 days. Another option that you might look at, however, is to make new employees eligible for the plan after 30 days, but to pay a higher portion (all?) of the premium than other employees.
Second, This could have easily been avoided by ofering a sign in bonus. This bonus could have represented the exact amount of the COBRA and this way you could avoid future problems. However, unless this was a key position or a difficult position to recruit for, why would you want to pay for COBRA?
Eliant
Yes, this is legal but not always smart. I admit that we have done it in the past on rare occasions for a high level position if negotiations warranted it. Sometimes you have to do what you have to do to get the right person. I doubt an office manager is in the process to make that call though.
If you pay the person money for this benefit, yes, it should be taxed.
As far as the whole 30 day vs. 90 day thing, you are in a tight spot and switching back to 30 days probably isn't realistic for you. If I can make a suggestion: go to 60 days instead as a compromise. 90 days is just plan dumb after HIPAA went into effect. Keep in mind that if ees incur a 63 day break in coverage, they can have preexisting conditions held against them. By using a 90 day waiting period, you are forcing people to either incur the break in coverage or spring for COBRA just to avoid the break in coverage. 60 days is more reasonable. They have more options to play the COBRA waiting game and avoid incurring that expense if no claims arise in that 60-day window.
As far as paying for the COBRA goes, I don't believe that it should be treated as taxable income. I don't think you are setting a precedent; however, most times we only consider it for executive positions. We do not pay for it all at once, we have the employee bring in each month's billing and pay through accounting department. This is to protect us, just in case they leave prior becoming effective.
Paying for COBRA premiums should not be made a common practice, as it is extremely expensive for the hiring company. We have also subsized the cost of COBRA, by having the employee pay what they would have paid had they been on our plan on day 1, then our company picks up the difference. A little more administrative work, but there are very few times we offer the payment of COBRA premiums.
One thing I should clear up is that we have 9 offices around the state, so by me saying an office manager hired a new employee, I should have said a branch manager to make it more clear to everyone. She does have full authority to hire, fire and negotiate hire pay rates/packages in that office/branch.
I am surprised for several people to say that it was OK to pay an employee's cobra bill and it was OK not to be taxed. Would they then have to get a 1099 at the end of the year (so they would still pay taxes in the end)? I understood that it must be our own section 125 plan for it not to be taxed.
Rob S.