Addressing benefit administration while employees are on leave under the Family and Medical Leave Act (FMLA).

From fostering a workplace culture centered on supporting the physical, emotional, career and financial wellbeing of employees to ensuring that benefit programs are compliant with local, state and federal requirements, effectively protecting the wellbeing of your employees connects directly to protecting the wellbeing of your organization overall. Compliance Connections delivers monthly, actionable guidance designed to help you manage and optimize the connections between the compliance of your benefits and human resources programs to overall organizational wellbeing. This edition focuses on benefit administration while employees are on leave under the Family and Medical Leave Act (FMLA). Below, we explore some important action steps employers should keep in mind when administering their FMLA leave programs.

Address specific eligibility policies with carriers. In general, employees eligible for FMLA leave protection must:

  1. Work for a covered employer;
  2. Have worked for that employer for at least 12 months as of the date the FMLA leave is to start (any combination of 52 weeks equals 12 months - if the employee has a break in employment that lasted seven years or more, you may not be required to count the time worked prior to the break);
  3. Have at least 1,250 hours of service for that employer during the 12-month period immediately before the date the FMLA leave is to start; and
  4. Work at a location where the employer employs at least 50 employees within 75 miles of that worksite as of the date when the employee gives notice of the need for leave.

You may be more generous with your leave policy by reducing or eliminating some of the FMLA eligibility requirements. For example, you may grant family or medical leave to individuals who have only worked for your organization for a total of six months as of the date leave is to begin, or you may grant family or medical leave to individuals who have worked a total of 1,000 hours during the 12 months preceding the beginning of leave. However, if you decide to be more generous with respect to your leave eligibility, you should confirm that any employee benefits provided during leave will be administered accordingly. For example, if you reduce the hours of service to 1,000 hours, confirm with your insurance or stop loss carrier, as applicable, that claims during the leave will be covered under your policy. If not, you may find yourself fully self-insuring any incurred claims. Are there any nuances to your FMLA leave program that should be addressed with your insurer or stop loss carrier to ensure that your organization is not left with self-insuring claims during FMLA leave?

Coordinate FMLA leave with workers' compensation leave when applicable. Typically, an injury or illness giving rise to a claim for workers' compensation will also invoke protection under FMLA — provided that the employee also qualifies for FMLA leave. Unfortunately, employers often fail to designate leave due to a workers' compensation injury or illness as FMLA leave. Failure to designate leave as FMLA leave means that FMLA protection continues to hover, and an employer can be faulted for not properly designating leave as FMLA leave. In addition, workers' compensation leave is considered to be paid leave, so the FMLA rules related to paid leave, such as payment schedules for an employee's share of premiums, and benefit continuation, also apply. Thus, it is necessary to be mindful of both FMLA and workers' compensation rules when an on-the-job injury or illness gives rise to a leave of absence. What steps does your organization take in order to ensure that FMLA and workers' compensation leave are coordinated?

Maintain group health benefits during FMLA leave. Your organization must maintain coverage under any group health plan for the duration of an individual's FMLA leave at the level and under the same conditions that coverage would have been provided if the employee had been continuously working for the duration of FMLA leave. Specifically, a "group health plan" under FMLA is defined as: a plan (including a self-insured plan) of, or contributed to by, an employer (including a self-employed person) or employee organization to provide health care (directly or otherwise) to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families." Under this broad definition, medical, dental, vision, prescription drug, health reimbursement arrangements, health flexible spending account (health FSA), and employee assistance program (EAP) (if medical care, such as mental health counseling, is provided) benefits are included. Unfortunately, many employers overlook benefits such as health FSAs and EAPs. Which of your organization's group health benefits are subject to continuation during an FMLA leave?

Address handling of non-health benefits during FMLA leave. An employee's entitlement to benefits other than group health benefits during a period of FMLA leave, such as holiday pay, is determined by your established policy for providing such benefits when an employee is on other forms of leave, paid or unpaid, as appropriate. Thus, if an employee is on paid FMLA leave, you must follow the rules you have for when employees are on other forms of paid leave such as personal leave or a sabbatical, and if you would continue benefits other than health benefits during those forms of leave, you should continue them during paid FMLA leave as well. Moreover, although FMLA does not require the maintenance of benefits other than group health insurance during the period of the leave, at the end of an employee's FMLA leave "benefits must be resumed in the same manner and at the same levels as provided when the leave began, and subject to any changes in benefit levels that may have taken place during the period of FMLA leave."How does your organization address non-health benefits for individuals on FMLA leave?

Correctly administer DCAP and health FSA benefits during FMLA leave. The IRS election rules for Dependent Care Assistance Plans (DCAPs) are more liberal than the rules used for health FSAs and other types of benefits. Since an employee going on an FMLA leave will have a reduced need for dependent care (or may not qualify to have dependent care expenses reimbursed because the employee is not working), the employee may want to reduce or cancel a DCAP election during the leave. If the employee does cancel DCAP during the leave, the employee may reinstate the DCAP election upon return from leave. If the employee discontinues health FSA participation during the leave, any expenses incurred while on leave would not be eligible for reimbursement. When the employee returns from unpaid leave, the employee must be permitted to reinstate coverage and may choose to continue coverage using the previous election amount or to prorate the amount to reflect the months when not participating. For example, if the employee initially elected $1,200 and canceled participation during a two-month period of unpaid leave, the employee must be permitted to choose between reinstating with a $1,200 election (which would mean payroll deductions higher than $100 per month) or use a $1,000 prorated amount ($100 per month x 10 months).How does your organization handle DCAP and health FSA administration for purposes of FMLA leave?

This is a preview edition of Compliance Connections, a monthly publication produced by Gallagher's Compliance Consulting Practice. For five more action steps, contact your Gallagher representative or visit our Compliance Resources page to subscribe and receive the full version of this publication each month.


Compliance is a series of actions, not a final destination. As a trusted advisor, Gallagher has developed this Compliance Connections series to help you pursue a path through employee benefits compliance issues as part of an overall continuing compliance plan. Plan sponsors should carefully evaluate their health and welfare plans to determine if they are in compliance with both federal and state law. If you have any questions about one or more of the compliance requirements listed above, or would like additional information on how Gallagher constantly monitors laws and regulations impacting employee benefits in order to support plan sponsors in their compliance efforts, please contact your Gallagher representative.


The intent of this analysis is to provide you with general information. It does not necessarily fully address all your organization's specific issues. It should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific issues should be addressed by your organization's general counsel or an attorney who specializes in this practice area.