April 18, 2010
Compensation 101: Benefits

For a Limited Time receive a FREE Compensation Special Report on the "Top 100 FLSA Q&As" designed to provide you with an examination of the federal FLSA Overtime Regulations in Q&A format, including valuable tips for FLSA Coverage, Salary Level, and Deductions from Pay. Download Now

Visit Introduction to Compensation: Comp 101, a new resource center that explains the basic elements of compensation planning in easy to understand terms and provides the guidance needed to set up an effective compensation program.

Topics Covered

Healthcare Insurance

There are presently no state or federal laws that require private U.S. employers to offer health insurance benefits. However, it is common practice to offer health insurance benefits as a means to attract and retain workers. Because private employers are not required to offer health insurance, it is up to each company to decide which employees will be offered health coverage, as long as it is done equitably.

Many employers offer health benefits only to full-time employees. The number of hours an employee must work each week to qualify as full-time depends on the individual employer. In general, most have a cut-off in the 30 to 35 hour a week range. More generous employers might offer benefits to those working just 25 hours a week.

Although employers are not presently required to provide healthcare benefits to employees, beginning Jan. 1, 2014, employers with 50 employees or more, with at least one worker who receives a subsidy (financial assistance from the government to help pay for health insurance), will be required to provide health insurance coverage to full-time employees or face paying a penalty. The requirement does not apply to employers with fewer than 50 employees. The annual penalty for not offering coverage is $2,000 for every full-time employee beyond the first 30.

Employers that offer coverage to employees may also be subject to penalties if any of their employees choose to buy coverage through the local health insurance exchange (which each state will be required to establish) instead of participating in the employer’s plan. These employers will be required to pay a $3,000 penalty annually for each of their employees who opt for coverage through the health insurance exchange and receive a premium tax credit for doing so. Employers will not be penalized for any employee insured through a spouse’s employer, Medicaid, or Medicare.

Healthcare insurance reform. The Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010 (HCERA), collectively referred to as the Affordable Care Act (ACA), created numerous coverage and benefit requirements including:

  • Dependent coverage to age 26 in both existing (grandfathered) and new plans effective for the first plan year beginning on or after September 23, 2010.
  • Ban on lifetime limits and restriction on annual limits in both existing (grandfathered) and new plans effective for the first plan year beginning on or after September 23, 2010.
  • End to preexisting condition restrictions on children in both existing (grandfathered) and new plans effective for the first plan year beginning on or after September 23, 2010.
  • Ban on coverage rescissions except in cases of fraud in both existing (grandfathered) and new plans effective for the first plan year beginning on or after September 23, 2010.
  • Minimum coverage without cost sharing for preventive services including immunizations; preventive care for infants, children, and adolescents; and additional preventive care and screenings for women in plans established on or after March 23, 2010, and effective for the first plan year beginning on or after September 23, 2010. This provision does not apply to grandfathered plans.
  • Managed care restrictions including the right to choose any participating primary care provider, ban on requiring prior authorization or referrals for visits to an obstetrician/gynecologist, right to treat an obstetrician/gynecologist as a primary care provider, and coverage of emergency care services without prior authorization and with the same cost sharing both in and out of network in plans established on or after March 23, 2010, and effective for the first plan year beginning on or after September 23, 2010. These provisions do not apply to grandfathered plans.
  • Effective for plan years beginning on or after January 1, 2014, plans, including grandfathered plans, and insurers may no longer impose annual dollar limits on coverage.
  • Waiting periods may not exceed 90 days. Effective for plan years beginning on or after January 1, 2014, insurers and plans, including grandfathered plans, must limit any waiting periods for coverage to 90 days.
  • Employers may offer employees increased wellness incentives, including rewards of up to 30 percent, increasing to 50 percent if appropriate, of the cost of coverage for participating in a wellness program and meeting certain health-related standards effective for plan years beginning on or after January 1, 2014.
  • Preexisting condition exclusions are prohibited effective for plan years beginning on or after January 1, 2014, for all plans, including grandfathered plans.
  • Cost sharing and deductibles in excess of those that apply to health savings accounts are banned effective for plan years beginning on or after January 1, 2014.
  • Clinical trials must be covered in plans established on or after March 23, 2010, and effective for plan years beginning on or after January 1, 2014. This provision does not apply to grandfathered plans.
  • Effective in 2014, large employers with more than 200 full-time employees that offer coverage will be required to automatically enroll employees into the employer’s lowest cost plan if the employee does not sign up for employer coverage or does not opt out of coverage.
  • The use of a uniform explanation of coverage in plan documents, including standardized definitions by March 23, 2012, for all plans, including grandfathered plans.
  • Group health plans and insurers offering group or individual coverage must make their coverage transparent by making available to the public accurate and timely disclosure of claims payment policies and practices, periodic financial disclosures, data on enrollment, data on disenrollment, data on the number of claims that are denied, data on rating practices, information on cost sharing and payments for any out-of-network coverage, information on enrollee and participant rights under Title I of the ACA, and other information that may be required by Health and Human Services (HHS). This requirement appears to apply beginning in 2014, but does not apply to grandfathered plans.

Portability, nondiscrimination, coverage guarantee, and renewability requirements. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) limits the duration of preexisting condition exclusions in group health plans and gives new enrollees credit for prior coverage. In addition to these “portability” requirements, the law also makes it illegal to use health status as a reason for denying coverage, guarantees group coverage for employers with 50 or fewer employees, and guarantees renewability of group health plans.

For more information on the Healthcare insurance reform please visit http://www.healthcare.gov or www.dol.gov/ebsa/healthreform.

Back to top

Flexible Benefits / Cafeteria Plans

Section 125 of the Internal Revenue Code (IRC) allows employees to pay for a variety of benefits with pretax dollars, thus reducing the amount of their wages that are subject to federal income and employment taxes. Employers also get a tax savings because their share of employment taxes is also reduced. The “qualified” benefits that may be provided through Section 125, or flex or cafeteria, plans include health insurance, disability insurance, group term life insurance, group legal services coverage, elective contributions to 401(k) plans, adoption assistance, and medical and child care reimbursements. Certain benefits such as long-term care insurance may not be funded with pretax dollars through a 125 plan.


The Internal Revenue Service (IRS) says that both a health savings account (HSA) and a high deductible health plan (HDHP) associated with the HSA may be offered as options under a cafeteria plan. Thus, an employee may elect to have pretax salary reductions contributed as employer contributions to an HSA and an HDHP. In general, an HSA is a tax-exempt trust, or custodial account, set up for the purpose of paying current ”qualified medical expenses“ and also for the purpose of saving—on a tax-free basis—money to pay for future medical and retiree health expenses. (The difference between an HSA “custodian” and an HSA “trustee” is minor and is governed by state law. In brief, the trustee has some discretionary, fiduciary authority and the custodian does not.)

An HSA can be established only for the benefit of an individual who is covered under a “high deductible health plan” (HDHP). An HDHP is sometimes referred to as a “catastrophic” health insurance plan and is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of healthcare expenses (i.e., the deductible) but will usually provide coverage after that. In order to open an HSA, the HDHP minimum deductible must be at least $1,000 (self-only coverage) or $2,000 (family coverage). The annual out-of-pocket expenses (including deductibles and co-pays) cannot exceed $5,100 (self-only coverage) or $10,200 (family coverage). HDHPs can have first dollar coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and co-pays and coinsurance) for out-of-network services.

Since an HDHP costs much less than a traditional policy because of the high deductible, this makes HSAs of interest to employers seeking to provide an employee a health benefit that will not bankrupt the company.

Types of Flexible Benefit Plans

There are three major types of flexible benefit plans:

  • The premium-only plan, which is the simplest and least expensive to administer;
  • The child care, adoption assistance, and medical flexible spending account; and
  • The full-scale flexible benefit plan (aka cafeteria plan), which is the most complicated to administer.

An employer may adopt each or all of the flexible benefit plan types.

Warning: Flexible benefit plans involve complex tax rules and should not be implemented without consulting a tax advisor who specializes in employee benefits.

Definition of a Sec. 125 cafeteria plan. A cafeteria plan must be a separate written plan that complies with the requirements of IRC Sec. 125 and IRS regulations. It must be maintained by an employer for employees, and operated in compliance with the requirements of IRC Sec. 125 and IRS regulations. Participants in a cafeteria plan must be permitted to choose among at least one permitted taxable benefit (for example, cash, including salary reduction) and at least one qualified benefit. A plan offering only elections among nontaxable benefits is not a cafeteria plan. Also, a plan offering only elections among taxable benefits is not a cafeteria plan. Finally, a cafeteria plan must not, with certain exceptions, provide for deferral of compensation. The exceptions from the ban on deferral of compensation are 401(k) plans, certain plans maintained by educational institutions to provide for postretirement group life insurance, and HSAs.

Written plan requirement. A cafeteria plan must be in writing and must be operated in accordance with the written plan terms. An amendment to a cafeteria plan must also be in writing. IRS regulations require that the written plan do the following:

  • Specifically describe all benefits;
  • Set forth the rules for eligibility to participate and the procedure for making elections;
  • Provide that all elections are irrevocable (except to the extent that the plan includes the optional change in status rules); and
  • State how employer contributions may be made under the plan (for example, salary reduction or non-elective employer contributions), the maximum amount of elective contributions, and the plan year.

If the plan includes a flexible spending arrangement (FSA), the written plan must include provisions complying with the uniform coverage rule and the use-or-lose rule. IRS regulations require that the written cafeteria plan specify that only employees may participate in the cafeteria plan and that all provisions of the written plan apply uniformly to all participants.

Back to top

Disability Insurance / Long-Term Care

Disability insurance is a type of insurance that allows individuals to protect themselves financially in case they become unable to work because of sickness, injury, or other disability. There are two main types of disability insurance: (1) short-term disability insurance; and (2) long-term disability insurance. Employers may choose to offer one or the other, or both. Disability insurance is a benefit that many employees consider valuable, and employers can provide it at little or no cost.

Short-term disability insurance. Short-term disability insurance programs usually run from 30 to 90 days, but some may continue for longer. Benefits vary under short-term programs and may range from 50 percent to 67 percent of an employee’s pre-disability income, subject to a weekly maximum. Additionally, there may be a waiting period before employees are eligible to receive short-term benefits. About 30 percent of employers with short-term disability insurance self-insure, according to BLR surveys. A small portion of the remaining surveyed employers (4 percent) partially self-insure, but the rest (66 percent) use conventional insurance.

Long-term disability insurance. Long-term disability insurance programs generally take over after short-term benefits have been exhausted. Benefits usually cover a percentage of an employee’s pay (e.g., 60 percent of an employee’s pre-disability income) and may be subject to a monthly maximum. Long-term disability benefits are typically reduced by the amount of Social Security disability benefits and/or workers’ compensation benefits that the employee may receive. The vast majority of employers with long-term disability plans use commercial carriers, according to BLR surveys.

Importance of Long-Term Care Insurance

Long Term Care (LTC) insurance provides financial aid for covered individuals who need medical, personal, custodial, and social services during long illnesses and disabilities. LTC includes an array of services ranging from nursing home care, skilled home health care, adult daycare, unskilled home personal care, and respite care. Alternatives to group LTC insurance for paying or providing for these services include individual policies, personal savings, accelerated life insurance benefits, Medicare and Medicaid, and care by family members. However, all these alternatives have drawbacks. For example, such alternatives may be expensive (individual policies and personal savings), provide limited coverage (Medicare), be open only to individuals with extremely limited financial resources (Medicaid), be available only to terminal individuals (accelerated life insurance), and be an extreme physical and psychological drain (family member assistance). Attempting to juggle these various alternatives puts a strain on active employees and results in indirect costs to employers because of reduced efficiency and absenteeism, increased healthcare costs, and higher turnover.

Statistically, there is a strong likelihood of disability striking workers before the age of 65. In fact, according to the 2010 U.S. Census Report, nearly 1 in 5 people have a disability in the U.S. and the risk of having a disability increases with age. The report reveals that for people age 25 to 44 the risk is 11%. For those aged 45 to 54 the risk increases to 19.7% and for those age 55 to 64 the risk jumps up to 28.7%. Still, you may need to help employees understand the importance of disability coverage. You can use statistics, like that one, or the 2008 university study that revealed that more foreclosures result from disability than from any other reason. You can also tell them that disability insurance is the best bargain available to them. Based on averages, for roughly $20 a month, the average American can cover 60 percent of their income with long-term disability insurance.

To get the message about the importance of disability insurance across, you have to start from a place of trust. Participation rates are higher in organizations where there is trust between the employer and the employee. Employees feel like the company is making the coverage available because they care, and are therefore more likely to participate. If there is not a lot of trust, they may feel like they are being sold something.

It is also important to use an insurance company you can trust. You need to know the benefits are going to be there, in the case of long-term disability, until age 65. An employee who becomes disabled could be collecting this benefit for decades, so there has to be a sense of trust and permanence.

Disability Insurance Plan Design

Disability insurance plans have a number of common characteristics and design variations that employers need to consider when establishing a program. Plan design will affect the cost of the coverage, how valuable it is perceived to be by employees, and how it fits into the overall benefits strategy of the employer. These factors have to be weighed when adopting or revising a disability insurance program.

Eligibility. Plans are typically limited to active full-time employees and should specify the number of hours employees are required to work to be eligible for benefits.
Premiums. Employers or employees may pay the premiums for disability coverage, or they may share the premium costs.
Coverage. The plan will provide details on the maximum benefit amount that employees are eligible to receive under the plan (e.g., 67 percent of an employee’s pre-disability income).
Defining disability. The plan should include the definition of disability that will be used to determine whether an individual is eligible to receive benefits under the plan.
Partial disability coverage. A plan may provide partial disability coverage that applies when an employee is able to work part-time or return to work on a restricted basis. Such coverage may be advantageous to employers because it encourages employees to return to work sooner.


Disability insurance plans are welfare benefit plans subject to the requirements of the Employee Retirement Income Security Act (ERISA). Plans must be in writing and must meet the reporting and disclosure requirements of ERISA. A disability insurance plan must include a claims procedure that is explained in the plan’s summary plan description. Stricter claims procedure requirements apply to disability plans than apply to many other ERISA plans. For example, disability claims must generally be decided within 45 days with the possibility of two 30-day extensions for circumstances beyond the plan’s control. Any adverse benefit determination must include the specific reason or reasons for the denial.

Practice tip. Plans should provide that the plan administrator has discretion to interpret the plan and determine benefit eligibility. Such a provision protects a plan in the event of a lawsuit for benefits, because courts will generally reverse the administrator’s decision only if they believe it was arbitrary or capricious. If such discretion is not specifically granted, a court will review the claim from scratch and substitute its own judgment for that of the plan administrator. Even with such a provision, it is important to follow the plan’s claim procedures exactly. If the claims procedure requirements are not completely followed in a particular case, a court may not defer to the plan administrator’s determination.

Back to top

Life Insurance

Group term life insurance is a popular benefit because the cost is relatively low and employees typically value the coverage highly, giving employers a big “bang for the buck.” Offering group term coverage provides basic financial security for employees and their families and helps to attract and retain the best employees.

Because group term life insurance is inexpensive and highly valued by employees, employers frequently pick up the full cost. In addition, the cost of the first $50,000 of group term insurance coverage may be provided tax-free to the employee. The most common practice among employers is to provide employer-paid group term life insurance in an amount equal to a percentage of each employee’s annual pay. There are numerous variations on this basic design, including:

  • Higher benefits, such as 11/2, 2, or 3 times annual salary
  • Flat-sum benefits in various multiples, such as $10,000, $25,000, $50,000, etc.
  • Requiring employees to pay a portion of the premiums
  • Allowing employees to purchase supplemental coverage at group rates
  • Employer-paid, employee-paid, or shared payments for spouse and dependent coverage
  • Additional group universal life insurance coverage giving employees additional portable insurance coverage and the ability to accumulate cash

Advantages of Group Term Coverage

Term insurance is the least expensive form of life insurance. A term policy covers only the “term”--usually a year--in which premiums have been paid, and it has no cash value, paying only in the event of the death of the insured. A term policy at group rates is less expensive per person than individual term policies would be for the same group of people, and a term policy is considerably less expensive than a “whole” life or “universal” life policy. These types of insurance have a cash value and are as much savings instruments as insurance policies. They are also available at lower group rates, but both are still a great deal more expensive than group term insurance.

Coverage Enhancements

Many companies enhance the value of their life insurance benefit, at no extra cost, by allowing employees to purchase additional insurance at the employer’s group rate, including coverage for the employee’s spouse and dependents. Some employers also provide accidental death and disability insurance in an amount equal to the life insurance benefit. This doubles the insurance benefit if disability or death results from a non-work-related accident. There is no consensus on the economic value of such “double indemnity” coverage, but many experts consider it necessary as a kind of air-travel insurance. Alternatively, separate travel accident policies can be purchased for those employees who travel frequently.

Plan Design

Although many employers pay the full cost of group life insurance, others believe that employees should contribute at least partially toward the premiums. In those cases where costs are shared between the employer and the employees, life insurance is often part of an overall package that includes other forms of insurance, such as health or disability coverage. Some employers give each individual employee a benefit budget and let the employee select the desired benefits. Although the employer is paying the tab, the employee decides on the allocation of funds among various alternatives, of which life insurance is typically one of the most popular. Group term life insurance is one of the tax-free benefits that may be offered through a flexible benefit/cafeteria plan.

Most group policies include the right to convert to an individual life insurance policy without a physical examination at time of termination of employment. In spite of the fact that an individual life insurance policy premium can be much greater than that of a group policy, this right to convert is still a valuable privilege to many employees who, because of advanced age or poor health, might not be able to obtain other insurance.

Therefore, it is extremely important that employers inform terminating employees in writing of any such right to convert their group life policy to an individual one, in order to avoid the possibility of incurring any future liability with regard to a lapsed policy.


It has been ruled improper under the Equal Pay Act to provide different amounts of life insurance for male and female employees. The fact that premium rates differ by gender does not justify different employee contributions for insurance. In addition, tax laws provide that a group term insurance plan may not discriminate in favor of certain “key employees” in plan eligibility or in the type or amount of benefits provided.

Back to top

Childcare / Daycare

Reliable, quality child care is a major concern to many employees. Studies show that in 2009 there were 34.8 million families with children in the United States, and 44 percent of those families had children under the age of 18 (U.S. Bureau of Labor Statistics). In families maintained by women, nearly 68 percent of all mothers were employed. In families maintained by men, over 77 percent of all fathers were in the labor force. In 59 percent of married-couple families with children, both parents were employed.

In light of these numbers, it is not surprising that national studies have shown that employers that provide some form of childcare assistance experience increased worker productivity, improved job satisfaction and employee morale, heightened success in recruitment efforts, and reductions in absenteeism and turnover. Employers that are interested in providing child care directly can consider a variety of options.

Full service on-site care. In a recent BLR Survey, 4 percent of employers answered that they provided on-site childcare facilities. For hospitals and other round-the-clock employers, on-site care may solve staffing problems because it can provide night workers with a solution to the often daunting problem of finding child care at a time most daycare centers are closed. For education institutions, on-site child care often serves as a valuable teaching resource that can be kept cost-effective through the use of student interns as staff.

Employer-funded off-site care and consortium care. Employers that are not prepared to operate an on-site center may wish to consider funding off-site day care either alone or in consortium with other area employers. This may be an attractive option for employers located near an existing daycare center or employers in large office buildings and industrial parks who can pool their resources in a single center. Typically, employers that fund a daycare center receive a set number of daycare “slots” in return for their financial assistance. Funding, rather than self-operating, a daycare center may also eliminate potential liability concerns.

Summer camps. Employer-supported summer camps offer extended hours to cover the full workday (rather than the 9 a.m. to 3 p.m. day that is standard at most summer camps). Because of employer subsidies, these camps may be a less expensive option for employees. Employers that fund summer camps often work through local schools or civic organizations. This option may help employees with school age children who need to find care during the summer months. Some employers also view summer camp funding as a relatively low-cost option with high public relations potential.

Backup day care. Some employers provide access to childcare services that employees can use on an occasional basis to fill unexpected gaps in care. Although employees still need to have daycare arrangements in place, having a “drop-in center” where parents can bring a child when a caregiver calls in sick or when schools close unexpectedly can dramatically reduce absenteeism. Some employers subsidize the backup programs and require employees to pay for a portion of the service, while other employers provide employees with a predetermined allotment of days per year to use a backup care free of charge.

Sick child day care. Some employers offer employees an option to use a sick child daycare center when regular daycare services cannot be used because a child is mildly ill. These centers are staffed by a registered nurse and other staff members who are certified in pediatric first aid and cardiopulmonary resuscitation.

If an employer is not financially ready to invest in either of the above options, it may consider providing an employer sponsored child care counseling and referral service. An employee with access to such a benefit can specify the age of his or her child, the days and hours child care is needed, how close to work or home the child care facility needs to be, how much the employee wants to spend, and what type of program he or she prefers. The benefits organization conducts the research and provides a list of child care facilities that match the employee’s needs. The employee can then visit the facilities and make a selection. Child care counseling and referral services are a powerful, cost-effective tool for recruiting and retaining working parents—and for improving their productivity and satisfaction levels.

Three ways for employers to identify employees’ child care needs are the following:

  • Communicate. Talk with employees informally and communicate formally through surveys.
  • Educate. Through workplace seminars on child care topics, employers can provide helpful information and learn about the issues that employees are facing.
  • Be a resource. HR should be in tune with the pulse of employees, as well as available benefits programs.

Employers who decide to offer child care services should take every opportunity to make employees aware of the services—through e-mail, direct mail, and posters in the office. For example, every employee should receive a brochure about the program, along with a letter from the company’s CEO, stating that the company understands that working parents have child care needs and that the company cares about helping employees address those needs.

Back to top

Domestic Partner Benefits

Although certain states recognize some form of domestic partnerships and have their own requirements, there are some general guidelines to consider when formulating your policy on domestic partnerships and benefits. (Note: An organization should always consult with a lawyer, as well as its insurance company, before offering benefits to domestic partners)

Tax Treatment and Dependency Status

As you may already know, married employees pay no taxes on healthcare benefits that they receive for their spouses and dependents because federal tax laws do not classify the money that is paid by the employer for these benefits as wages. Treasury Regulation §1.106-1 provides that an employee’s gross income does not include contributions that his or her employer makes to an accident or health plan for compensation (through insurance or otherwise) to the employee for personal injuries or sickness of the employee, the employee’s spouse, or the employee’s dependents. Therefore, the money that is paid for health benefits for the employee’s spouse and dependents that is not considered wages is excluded from the employee’s gross income (Internal Revenue Code (IRC) §§105-106).

Employees with a domestic partner often must pay for coverage with post-tax dollars, and then must pay taxes on the employer’s share of payment for benefits of domestic partners as added income because domestic partners do not have status as spouses (under the Defense of Marriage Act (DOMA) or as a dependent.

Qualifying as a Dependent

A domestic partner is not considered a spouse. Therefore, the tax treatment of the domestic partner depends on whether the domestic partner is able to qualify as the employee’s dependent. Three criteria must be met for a domestic partner to be considered a dependent (IRC §152).To be considered a dependent:

  1. The person must receive more than half of his or her support from the employee;
  2. The person must live in and be part of the employee’s household; and
  3. The relationship must not be in violation of local law.

If the employee does qualify as a dependent under the IRC, then payments for healthcare coverage and other benefits will be treated in the same way as coverage for other employees with family coverage. If payment of health insurance premiums is made through a cafeteria plan, the premiums for domestic partner coverage may be deducted from the employee’s salary on a pretax basis.

If the domestic partner does not qualify as a dependent, the value of the coverage is included in the gross income of the employee, and the value of the coverage-not the amount of the benefits-must be reflected on the employee’s W-2 Form.

Tax Determination

For an employee who does not receive tax-favored status, the tax is determined by assessing a fair market value for covering the domestic partner. The amount is then reported on the employee’s W-2 Form and is subjected to Social Security, FICA, FUTA, and federal withholding taxes.

Wage Withholding, FICA, and FUTA

An employee who covers a domestic partner who does not qualify for dependency status must pay taxes on that health coverage. IRS has determined that the amount of the health coverage must be included in the gross income of the employee because it constitutes wages under Code Section 3401(1) and Section 3121(a).The amount of health coverage is, therefore, subject to withholding of income, FICA, and FUTA taxes. The amounts to be withheld need to be deducted from the employee’s other pay.

In order to avoid any misunderstandings about tax consequences to the employee, many employers include a statement about tax consequences in an affidavit that the employee is asked to sign. An example might be that: federal taxes (federal tax, FICA, and FUTA) and state taxes are deducted for the employee’s taxable income for the cost of providing coverage for domestic partners. Additional handouts with additional explanations are also a common practice.

Section 125: Flexible Benefits and Spending Accounts

Under a cafeteria plan or health flexible spending account (FSA), if a domestic partner does not qualify as the employee’s dependent, the employee cannot pay premiums for coverage for that partner on a pretax basis through the premium conversion portion of a Section 125 cafeteria plan. The employee may not submit the domestic partner’s healthcare or dependent care expenses for pretax reimbursement from the employee’s health FSA, even if the employee paid those expenses.


Federal law denies same-sex couples coverage under COBRA for the nonemployee same-sex spouse (29 U. S. C. §§ 1161 – 1168). Insurance companies are covered by both state and federal regulations and, therefore, may be required under state regulations to extend benefits to a same-sex partner. Before extending such rights, an organization should obtain an insurance carrier’s written consent.


The Employee Retirement Income Security Act (ERISA) preempts state and local law so that a same-sex spouse is not recognized and entitled to coverage. An employer has the option to extend ERISA to same-sex spouses and domestic partners, however, certain spousal benefits-such as survivor and pre-retirement annuities under pension plans and the right to death benefits under 401(k) plans-will not be afforded to these couples pursuant to DOMA.

It is important to remember that, under ERISA, once an employer writes a definition of domestic partner into a benefit plan, it is obligated under federal law to follow that definition when administering the plan. Therefore, the employer must be very careful that the language used accurately reflects only those situations where the employer intends to apply coverage.

Back to top

Leave of Absence

FMLA / Sick Leave

The Family Medical Leave Act (FMLA) (29 USC 2601) of 1993 requires covered employers to provide up to 12 weeks of unpaid family and medical leave to eligible employees. The FMLA has also been expanded to allow for 26 weeks of unpaid leave in a single 12-month period for qualified employees caring for a military service member or veteran. The FMLA does not supersede state laws if those laws provide greater leave rights to employees. This means that employers covered by the FMLA and a state law must take steps to ensure that employees receive the full benefit of both.

The U.S. Department of Labor (DOL) Wage and Hour Division is responsible for enforcing the FMLA. Employers that violate the law are liable for damages for wages, salaries, employment benefits, or other compensation denied or lost to employees because of violations, including interest on the monies. Reinstatement, promotion, or other appropriate remedies may also be ordered.

The FMLA affects private employers with 50 or more employees for each working day during each of 20 or more weeks in the current or preceding year. All public employers are covered, regardless of size. There are also special provisions for teachers and other instructional employees of public and private elementary and secondary schools.

Employees eligible for leave are those who have worked for at least 12 months for the employer from whom leave is requested, and for at least 1,250 hours during the 12 months immediately preceding the start of the leave.

12 Months’ Service

Employment periods prior to a break in service of 7 years or more need not be counted in determining whether the employee has been employed by the employer for at least 12 months. However, FMLA’s final regulations state that employers must "count" service beyond the 7-year cap if the employee’s break in service is caused by his or her service in the National Guard or reserves, or if the employee and employer have a written agreement concerning the employer’s intention to rehire the employee after the break in service (e.g., for purposes of the employee furthering his or her education or for child-rearing purposes). This includes collective bargaining agreements. Employers may also choose, as a matter of policy for all types of leave, to consider employment prior to a continuous break in service of more than 7 years when determining whether an employee has met the 12-month employment requirement.

The minimum service requirement is calculated as of the date leave begins, not the date leave is requested. If an employee requests leave before the eligibility criteria have been met, the employer may have to project when the date of eligibility begins. An employee may be on non-FMLA leave at the time he or she meets the eligibility requirements and, in that event, any portion of the leave taken for an FMLA-qualifying reason after the employee meets the eligibility requirement would be FMLA-qualifying leave. The 12-month service requirement does not require consecutive months of service.

The methods for calculating the FMLA 12-week limit may be based on:

  • The calendar year;
  • Any fixed 12-month period (such as a fiscal year, year required by state law, or year that begins with an employee’s anniversary date);
  • A 12-month period, measured forward, that begins on the date an employee first starts the FMLA leave; or
  • A “rolling” 12-month period, measured backward, from the date an employee last used any FMLA leave.

1,250 Hours

The number of hours an employee has worked is determined in accordance with principles established under the Fair Labor Standards Act (FLSA). The FLSA requires that nonexempt employees be paid for the hours they actually worked. Hours an employee was on vacation or on leave, even if the vacation or leave is paid, do not count as time actually worked and, therefore, are not included in determining if an employee satisfies the 1,250-hour threshold. As with the 12-month service requirement, when determining whether the employee worked the 1,250 hours of service, an employee returning from fulfilling his or her National Guard or military reserve obligation must be credited with the hours of service that would have been performed but for the period of military service.

Special Rule for Airline Industry

The FMLA was specifically amended by the Airline Flight Crew Technical Corrections Act of 2009 to allow the hours that pilots or flight attendants work or for which they are paid to be included for FMLA eligibility. The FMLA provides that an airline flight crew member is eligible to take FMLA leave if (1) he or she has worked or been paid for 60 percent of the applicable monthly guarantee or the equivalent amount annualized over the preceding 12-month period and (2) he or she has worked or been paid for at least 504 hours during the previous 12-month period.

The applicable monthly guarantee for employees other than those on reserve status is defined as the minimum number of hours for which the employer has agreed to schedule the employee for any given month under the applicable collective bargaining agreement or the employer’s policies. For an employee who is on reserve status, the applicable monthly guarantee means the minimum number of hours for which the employer has agreed to pay the employee for the month under the collective bargaining agreement or the employer’s policies.

Number of Employees

The FMLA requires that an employee also must work at a worksite where there are 50 or more employees on-site or within a 75-mile radius of the worksite. The 75-mile distance is measured by surface miles, using surface transportation over public streets, roads, highways, and waterways by the shortest route from the facility where the employee requesting leave is employed. For employees with no fixed worksite, the “worksite” is the site to which they are assigned as their home base, from which their work is assigned, or to which they report. Whether 50 employees are employed within 75 miles is determined when the employee gives notice of the need for leave. The employee’s eligibility is not affected by any subsequent change in the number of employees employed.

Reasons for Leave

The law allows eligible employees to take up to 12 workweeks for leave during any 12-month period for the following reasons:

  • The birth of a child or the placement of a child with the employee for adoption or for foster care
  • To care for a spouse, son, daughter, or parent with a serious health condition
  • The employee’s own serious health condition
  • Any qualifying exigency arising out of the fact that the spouse or a son, daughter, or parent of the employee is on covered active duty (or has been notified of an impending call or order to covered active duty) in the armed forces

Return to Same or Equivalent Position

With some exceptions, the law requires that employers provide each returning employee with the same position or an equivalent position. An equivalent position is one that is virtually identical to the employee’s former position in terms of pay, benefits, and working conditions including privileges, perquisites, and status. It must involve the same or substantially similar duties and responsibilities, which must entail substantially equivalent skill, effort, responsibility, and authority.

The employee must be reinstated to the same or a geographically proximate worksite (i.e., one that does not involve a significant increase in commuting time or distance) from where the employee had previously been employed. The returning employee must have the same or an equivalent opportunity for bonuses, profit-sharing, and other similar discretionary and nondiscretionary payments.

FMLA does not prohibit an employer from accommodating an employee’s request to be restored to a different shift, schedule, or position that better suits the employee’s personal needs on return from leave, or to offer a promotion to a better position. However, FMLA prohibits employers from inducing an employee to accept a different position against the employee’s wishes.

What Employers Need to Know

You may not deny FMLA leave because your attendance policy is more stringent than that of the FMLA or your state leave law.

You may not be silent about FMLA. You need to make sure your employees understand everything about the law that pertains to them. When an employee asks for a FMLA (or state medical-family leave) the supervisor must send the employee to human resources for a decision. Everyone—supervisors and HR alike—must be trained to know employee rights and employer obligations under the FMLA. Mistakes can be very costly.

Title VII of the Civil Rights Act of 1964

This law provides that pregnancy and related conditions are to be treated the same as other temporary disabilities for all employment purposes, including leaves of absence. (In other words, if a man who had a heart attack is granted leave, a pregnant woman must be granted leave.) Furthermore, a leave policy that is more liberal toward pregnant employees than other employees may be considered lawful, despite the fact that it may seem to discriminate against workers who request leaves of absence for reasons not related to pregnancy.

State Leave of Absence Laws

Many states have laws regarding family and medical leave. Employers must be careful to coordinate their federal and state leave law compliance programs to ensure full compliance with both.

Back to top

Worker’s Compensation

Worker’s Compensation is a program, governed by state law, under which workers give up their right to sue employers in court for their workplace injuries, and employers agree to compensate the injuries regardless of fault. As a result, payments are more certain and more timely, and both employer and employee know what to expect. In most states, only the smallest employers are exempt from providing coverage, as are corporate officers and the self-employed. Texas and New Jersey are the only states that allow employers to opt out of the workers’ comp system and its procedures, as long as they acquire alternative coverage from a substitute program.

Federal Workers’ Compensation Programs

Most workers’ compensation programs are established and governed by state law. However, there are a few federal programs:

  • The Federal Employment Compensation Act (FECA) provides workers’ compensation for nonmilitary, federal employees. Most of its provisions are similar to state workers’ compensation programs.
  • The Federal Employment Liability Act (FELA), while not a workers’ compensation statute, provides that railroads engaged in interstate commerce are liable for injuries to their employees if they have been negligent. The Merchant Marine Act (Jones Act) provides seamen with the same protection from employer negligence as FELA provides railroad workers.
  • The Longshore and Harbor Workers’ Compensation Act provides workers’ compensation to specified employees of private maritime employers.
  • The Black Lung Benefits Act provides compensation from mine operators or the Secretary of Labor for miners suffering from “black lung” (pneumoconiosis).

State Law Controls

Workers’ compensation is regulated at the state level. Except for federal employees and certain maritime and railroad workers, there is no national system for compensating people injured on the job. State laws define the types of injuries that are compensable, set the levels of cash benefits, establish waiting periods before benefits begin, and detail procedures for filing, contesting, and settling claims. While there are many common elements in terms of coverage, benefits, and administration, each state has its own system of insurance to cover employee claims arising from occupational injury and illness.

Workers’ compensation coverage is compulsory in every state but Texas and New Jersey, and even these states have detailed procedures for electing not to be covered and strong incentives for employers to provide it. In all other states, employers that do not carry workers’ compensation insurance are violating the law and will be hit with a variety of penalties, ranging from substantial fines to prison time or both. Beyond that, an employee who is hurt on the job and whose employer does not have workers’ compensation insurance may sue at common law. If this happens, the typical defenses—assumption of risk, contributory negligence, reckless behavior, failure to use provided safety equipment or techniques—are closed to the employer. Also, the claims and awards at common law, such as negligent infliction of emotional distress and punitive damages, may go much beyond the benefits that workers’ compensation provides.

The ‘No-Fault’ Concept

Workers’ compensation is a no-fault system. This simply means that negligence or fault in the accident’s cause is not at issue, and that in almost all cases, a covered employee who is hurt or diseased merely has to show that the injury arose as a result of the employment (in some states, partially as a result of the employment or was aggravated by the employment) and during work time. The official phrase for this is “out of and in the course of employment.”

Exceptions to Coverage

Categories of covered employees differ from state to state. Generally, however, workers covered by federal workers’ compensation laws are not covered by state law. In most (but not all) states, domestic workers, casual employees, farm workers, the clergy, and independent contractors are not covered.

In most (but not all) states, injuries resulting from a worker’s intoxication, intention to harm himself or another, the worker’s “coming and going” (i.e., commuting) injuries and injuries resulting from recreational activities are not covered.

Extraterritorial Coverage

Most state workers’ compensation laws are “extraterritorial.”This means that an employee hired in one state, who is hurt while out of state, is eligible for workers’ compensation under the hiring state’s law. Some states limit the time the employee can have been out of state for coverage to apply; some states give the employee the option of claiming coverage under either state.


There are several options for securing coverage.

Commercial insurance. An employer may buy commercial or private insurance through an authorized insurance carrier. Private carriers pay benefits, investigate and pay claims, arrange for auxiliary benefits (such as rehabilitation services), and perform administrative chores.

Self-insurance. The majority of states allow an employer that qualifies financially to self-insure, i.e., pay and administer claims itself.

Group self-insurance. In some states, two or more employers in similar businesses may, with approval from the state workers’ compensation division, pool their workers’ compensation coverage.

State funds. Many states have state workers’ compensation insurance funds through which employers may purchase insurance coverage. In some states, these funds are the exclusive source of coverage. In others, the state funds compete with private insurance carriers.

Residual insurance. The residual insurance market offers coverage to companies that have difficulty getting insurance normally, because they’re in hazardous businesses or have poor accident records. Premiums are, accordingly, higher. Residual insurance is generally offered by the private insurance market.

24-hour coverage. A few states are experimenting with procedures that combine workers’ compensation and health insurance under one insurance policy (called “24-hour coverage”).


Workers’ compensation has evolved into a system that is largely common to all states, and includes the following categories.

Medical Costs. Workers’ compensation pays full medical costs for covered injuries or illnesses. It also provides compensation for physical (and in some cases, mental) disability.

Disability/Wage Loss. In addition to medical benefits, workers’ compensation also compensates for loss of earning capacity resulting from disabilities. Almost all the states group disabilities into the following categories.

Total disability. A total disability results from an occupational injury or illness that leaves a worker entirely unable to earn a living, whether permanently or temporarily.

  • Permanent total disability most commonly involves the loss, or loss of use, of two limbs, loss of eyesight, paralysis, and some forms of lung, heart, or psychological disease. It pays a proportion of the employee’s preinjury wage, long term.
  • Temporary total disability payments also pay a percentage of the employee’s preinjury wage, in expectation of a recovery. Benefits are provided until it’s evident that the worker has made as much of a recovery as he or she is going to make. At this point a determination is made whether the person can return to any sort of gainful work, and what kind of work. If necessary, the person might be referred for vocational or physical rehabilitation or be reassigned, which might mean a termination of benefits.

Partial disability. Injuries or illnesses that allow the person to work, but not at his or her regular job, normal hours, or normal earnings level, are called partial disabilities. Most states have two separate classifications for partial disabilities, with a different payment arrangement for each category:

  • Permanent partial disability involves the loss, or loss of use, of a body part. Such injuries are listed, or “scheduled.” The injured worker receives weekly, proportional payments for the period specified in the schedule for that injury.
  • Temporary partial disability encompasses mostly temporary impairments that allow the person to work but not at his or her regular job. The benefit is a percentage of the difference between the person’s pre-injury earnings and post-injury earnings. Most states place a time limit on eligibility for such benefits.

Death Benefits. Wage replacement benefits, as well as burial and funeral expenses, are available in every state for the surviving spouse and dependents of an employee who dies as a result of a work-related injury or illness. The amount of compensation is usually the same as for total disability.

Rehabilitation and Retraining Benefits. Many states require the employer to provide physical rehabilitation—meant to help the injured worker with the physical aspects of recovery and return to work. Additionally, a number of states mandate vocational rehabilitation for the worker whose injury prevents him or her from returning to their prior position, but who may be retrained or reeducated for a new job with the old employer, or with a new company.

Workers’ Compensation and FMLA

If the reason a worker is out for work injury would otherwise qualify for a leave under the Family and Medical Leave Act (FMLA), and the employer is covered under the FMLA, the employer generally will want to designate the leave as FMLA leave. Final FMLA regulations provide that leave taken pursuant to a workers’ compensation would be considered FMLA leave for a serious health condition and counted in the leave entitlement permitted under the FMLA, if the situation otherwise meets the criteria for FMLA leave. In such a case, the employer may designate the leave as FMLA leave and count the leave against the employee’s FMLA leave entitlement with the workers’ compensation absence and the FMLA leave running concurrently.

Cost-Control Programs

During the past decade, the amount employers paid for workers’ compensation insurance rose at an alarming rate. The causes of this increase are a matter of continued debate, but medical expenses were certainly an important culprit. In addition, “downsizing” may have led employees to be more inclined to seek workers’ compensation benefits in order to get as much out of the employer as possible. And when the workforce is stretched thin, employees may have more accidents.

The increase has slowed in many states—largely because of reform legislation, changes in the way medical services are provided, strong safety programs, an emphasis on finding and cutting out fraud, and increased return-to-work programs. Also, employers retaining some, or all, of the risk may be helpful in lowering their workers’ compensation costs.

Human resources managers, insurers, and labor consultants recommend investigating the following programs that may limit the costs of workers’ compensation.

Managed Care. Managed care in workers’ compensation means the employer affiliates with an organization for which health care providers work (usually called an HMO) or that offers a list of physicians and other care providers (a PPO).

Safety Programs. Many states require employers to have an effective safety program at the workplace. Depending upon the states, such programs may involve worker training, safety equipment, and safety techniques.

Return to Work. The restoration of an experienced employee is of far greater value to the company than bringing an inexperienced and untried worker on board. Returning a regular, experienced employee back to the job can bring substantial benefit savings and improve productivity. Further, there is evidence that employees who return to work quickly are less likely to seek an attorney than those who remain on disability leave.

Fraud Investigation. A number of states have established state insurance fraud units with authority to prosecute fraudulent claimants, employers, insurers, and health care providers. Penalties may include large fines and substantial jail sentences. Some states require insurers to institute their own fraud squads for investigating workers’ compensation claims. In addition, many employers have instituted fraud units in their companies. These developments have already made quite a dent in workers’ compensation costs.

Self-insurance. Almost all states these days allow employers to self-insure their workers’ compensation obligations. This means that the employer assumes some or all of the losses itself, and does not purchase workers’ compensation insurance. An employer may expect a better cash flow through self-insurance, because it does not have to pay premiums in advance. Also, because the employer is very aware of what claims it is paying, and why, there is generally more emphasis on safety and all other methods of loss and risk control, as well as greater involvement in the claims process.

Third-party administrators (TPA). Outside companies will act as TPAs for administration responsibilities, and offer a variety of services. At a minimum, the TPA should process claim reports, file them to the state, investigate claims, recommend physicians and medical facilities, assist in rehabilitation, and see to subrogation. Typically, claim and loss control services cost from 10 percent to 15 percent of the employer’s normal insurance premium.

Deductibles. Deductibles are a useful cost-control tool for employers. Today, nearly all non-monopolistic states have approved deductible plans for workers’ compensation insurance. The benefit of deductibles, particularly large deductibles (they apply per claim), is that they offer many of the benefits of self-insurance without the high start-up costs, separate insurer services, and regulations.

There is no magic toreducing workers’ compensation costs. It simply involves prevention through an active safety program and vigorous management of claims. Taking the time to make such an effort will be more than adequately rewarded in fewer accidents and much lower workers’ comp costs.

Back to top

Military Leave

The Uniformed Services Employment and Reemployment Rights Act (USERRA) of 1994 prohibits an employer from denying any initial employment, reemployment, retention in employment, promotion, or any benefit of employment to an individual on the basis of his or her membership, application for membership, performance of service, application for service, or obligation for service in the uniformed services. The law also prohibits an employer from retaliating against an individual by taking any adverse employment action against him or her because the individual has exercised his or her USERRA rights, testified in connection with a proceeding under USERRA, or assisted in a USERRA investigation. The law covers all public and private employers (38 USC Sec. 3801et seq.).

In 2011, USERRA was amended by the Veterans Opportunity to Work to Hire Heroes Act of 2011 (the VOW to Hire Heroes Act) to recognize claims of a hostile work environment based on an individual’s military status. Before the VOW to Hire Heroes Act took effect, courts generally did not allow individuals to sue for a hostile work environment under USERRA. USERRA, as amended, prohibits discrimination based on military status with respect to the “terms, conditions, or privileges of employment,” the same standard governing a hostile work environment under Title VII and other employment discrimination laws.

USERRA requires that upon returning from service, members of the armed services and its reserve components must be reinstated to their private civil jobs without loss of seniority or benefits and without any break in service for pension purposes (38 USC 4301 et seq.). An employer may provide greater rights and benefits than USERRA requires, but no employer can refuse to provide any right or benefit guaranteed by USERRA.

The law protects military personnel, including those who perform weekend drills, summer encampment, or similar types of training duty. The employer is obliged to reschedule the worker, if possible, to avoid conflicts between work and reserve or Guard training so the employee may work a full week.

USERRA preempts any state law that is less protective of the employment and reemployment rights of uniformed service people. That is, if the state law is less protective than USERRA, the rights given by USERRA will apply and not the less-protective state law. In addition, if a state law is more protective than USERRA, the state law will apply.

USERRA does not protect independent contractors.

Requirements for Protected Leave

USERRA provides that an employer must not deny reemployment, retention in employment, promotion, or any benefit of employment to an individual on the basis of his or her membership, application for membership, performance of service, application for service, or obligation for service in the uniformed services.

Uniformed services defined. “Uniformed services” is defined (38 USC 4303) as the performance of duty on a voluntary or involuntary basis in the:

  • Armed forces
  • Army National Guard and the Air National Guard when engaged in active duty for training, inactive duty training, or full-time National Guard duty
  • Commissioned Corps of the Public Health Service
  • Any other category of persons designated by the president in time of war or emergency (20 CFR Part 1002.5(o))

Service in the uniformed services defined. “Service in the uniformed services” means the performance of duty on a voluntary or involuntary basis in a uniformed service. Service in the uniformed services includes active duty, active and inactive duty for training, National Guard duty under federal statute, and a period for which a person is absent from a position of employment for an examination to determine the fitness of the person to perform duties in the uniformed service. The term also includes a period for which a person is absent from employment to perform funeral honors duty as authorized by law (20 CFR Part 1002.5(l), 10 USC 12503, or 32 USC 115).

Note: Members of the National Guard have dual status. They are members of the reserve component of the army, or, in the case of the Air National Guard, of the air force. Simultaneously, they are members of a state military force subject to call-up by the state governor for duty not subject to federal control, such as emergency duty in cases of floods or riots. National Guard members may perform service under either federal or state authority, but only federal National Guard service is covered by USERRA (20 CFR Part 1002.5(o)). Many states have laws protecting the civilian job rights of National Guard members who serve under state orders.

Notice of leave. Employers have the right to receive advance notice of service, unless military necessity or other conditions make it impossible for the employee to provide notice. The employee, or an appropriate officer of the uniformed service in which his or her service is to be performed, must notify the employer that the employee is to perform military service. An “appropriate officer” is a commissioned, warrant, or noncommissioned officer authorized to give such notice by the military service concerned. The notice to the employer may be either verbal or written. The notice may be informal and does not need to follow any particular format.

Although USERRA does not specify how far in advance notice must be given to the employer, an employee should provide notice as far in advance as is reasonable under the circumstances (20 CFR Part 1002.85). Employers may not insist on knowing exactly when the employee will return to work, or even if the employee intends to seek reemployment after his or her term of service. However, the employee can be asked to furnish the employer with the approximate beginning and concluding dates of his or her service.

Note: An employee who provides notice of military leave is not asking for the employer’s permission to leave his or her employment. If the employee is qualified under USERRA, he or she is legally entitled to take such leave and to be reemployed at the end of his or her term of service. However, the employer is permitted to bring its concerns over the timing, frequency, or duration of an employee’s service to the attention of the appropriate military authority. Regulations issued by the Department of Defense direct military authorities to provide assistance to an employer in addressing these types of employment issues (32 CFR Part 104.4). The military authorities are required to consider requests from employers of National Guard and reserve members to adjust scheduled absences from civilian employment to perform service (20 CFR Part 1002.104).

Limit on length of duty. Under USERRA, an employee may take a maximum of 5 years’ leave for military service. Five years is the maximum cumulative length of absence for all absences with that employer, not with previous employers (38 USC 4312(a)(2)). There are limited exceptions to the 5-year limit, which may increase the maximum leave time allowed. These exceptions include service that is required beyond 5 years to complete an initial period of obligated service; the time consumed by trouble in obtaining release from service; the time for necessary training; and the time an employee is ordered to stay in active duty under certain federal laws (38 USC 4312(c)). The 5-year period includes only the time the employee spends actually performing service in the uniformed services. A period of absence from employment before or after performing service in the uniformed services does not count against the 5-year limit (20 CFR Part 1002.100).

When leave begins. An employee need not begin military service immediately upon leaving employment. The employee must have enough time after leaving employment to travel and arrive safely to the uniformed service site fit to perform the service. Depending on the specific circumstances, including the duration of service, the amount of notice received, and the location of the service, the employee may need additional time to rest or to arrange affairs and report to duty (20 CFR Part 1002.74). For example, if an employee is ordered to perform an extended period of service overseas, he or she will need a reasonable period of time to put personal affairs in order; or if an employee performs a full overnight shift just prior to reporting to service, he or she would not be considered fit to perform service.

Benefits and Wages While on Leave

During a period of service in the uniformed services, the employee is deemed to be on furlough or leave of absence. In this status, the employee is entitled to the non-seniority rights and benefits generally provided by the employer to other employees with similar seniority, status, and pay who are on furlough or leave of absence. The employee is entitled to non-seniority rights and benefits that the employer provides to similarly situated employees by an employment contract, agreement, policy, practice, or plan in effect at the employee’s workplace. These rights and benefits include those in effect at the beginning of the employee’s employment and those established after employment began. They also include those rights and benefits that become effective during the employee’s period of service and that are provided to similarly situated employees on comparable periods of furlough or leave of absence.

Note: If the employee knowingly provides written notice of intent not to return to the position of employment after service in the uniformed services, he or she is not entitled to non-seniority rights and benefits. The employee’s written notice does not waive entitlement to any other rights to which he or she is entitled under the Act, including the right to reemployment after service.

Wages. Employers are not required to pay employees who are on military leave. Those companies that do provide for continuing an employee’s pay during short periods of military service quite often pay only the difference between the employee’s regular salary and military pay. In computing military pay, food and other allowances given to officers are usually excluded. Although employers are not required to pay wage differentials to those in military service, if they promise to do so by policy, contract, or both, they are obliged to pay, or face double damages under USERRA if the pay is improperly withheld.

Health insurance. The Veterans Benefits Improvement Act (VBIA), which amended USERRA, requires that employers offer those on military leave and their dependents the right to continue in the group health plan for up to 24 months of service. Prior to passage of the VBIA, healthcare continuation was 18 months. Employees may be required to pay 102 percent of the full premium for insurance, except if the employee is on leave for 31 days or less, then the employee may not be charged more than the amount he or she would have paid if still employed (38 USC 4317(a)(1)(b)). Upon reemployment, an employee and his or her family may reenter the employer’s health plan. The VBIA is effective for elections made on or after December 10, 2004.

Vacation and sick leave. An employee must be permitted, upon request, to use any accrued vacation, annual, or similar leave with pay during the period of service in order to continue his or her civilian pay. The employer may not require the employee to use accrued vacation, annual, or similar leave during a military service. The employee is not entitled to use sick leave that accrued with the employer during a period of service in the uniformed services, unless the employer allows employees to use sick leave for any reason, or allows other similarly situated employees on comparable furlough or leave of absence to use accrued paid sick leave. Sick leave is usually not comparable to annual or vacation leave; it is generally intended to provide income when the employee or a family member is ill and the employee is unable to work (20 CFR Part 1002.153(a)).

Pension benefits. Under USERRA, no break in employment is considered to have occurred because of military service, no forfeiture of benefits already accrued is allowed, and there is no need for an employee to re-qualify for participation in the pension plan because of absence for military service (38 USC 4318). In addition, employers are required to make (on behalf of returning employees) any contribution to their pension plans that the employer would have made if the employee had not been absent for military service.

For defined contribution plans, which offer benefits only when the employee makes contributions, returning employees will have up to three times their length of service—up to a maximum of 5 years—to make contributions that may have been missed while the employee was in service. The employer must make matching contributions only to the extent that the reemployed service member makes the required employee contribution to the plan. Employers are not required to credit the employee with any interest that would have been earned.

Early distributions from retirement plans. Eligible reservists may take "qualified reservist distributions" (QRDs) from their IRAs, 401(k)s, and 403(b) tax-sheltered annuities without paying the standard 10 percent early distribution penalty (although income taxes will apply in most cases). The law is retroactive to September 11, 2001.

Medical flexible spending accounts (FSAs). The Heroes Earnings Assistance and Relief Act (HEART Act), among other things, amended the provisions of IRC Sec. 125 to give individuals called to active duty access to the funds in a medical FSA. A medical FSA may provide for a “qualified reservist distribution,” which is a distribution of all or part of an employee’s account to an employee called to active military service.

Note on the FMLA. FMLA regulations state that active duty time counts toward eligibility to take time off from work under the FMLA. To qualify for leave under the FMLA, an individual must work for an employer with 50 or more employees for at least 12 months and for 1,250 hours in the 12 months immediately preceding the request for leave. Employees may take 12 weeks of FMLA leave per 12-month period for the birth or adoption of a child; to care for a spouse, parent, or child with a serious health condition; or for the employee’s own serious health condition.

A reservist or Guard member who is taking military leave under USERRA might not have actually worked for his or her employer for a total of 12 months, nor have met the 1,250 hours requirement when he or she left for military duty. The DOL’s FMLA regulations state that employers should count the months and hours that U.S. reservists or National Guard members would have worked if they had not been called to military duty toward the 1,250-hour requirement for FMLA eligibility.

Reemployment of Service Personnel

The employer must promptly reemploy the employee when he or she returns from a period of service if the employee meets the law’s eligibility criteria, described below. “Prompt reemployment” means as soon as practicable under the circumstances of each case. Absent unusual circumstances, reemployment must occur within 2 weeks of the employee’s application for reemployment (20 CFR Part 1002.181).

As a general rule, the employee is entitled to reemployment in the job position that he or she would have attained with reasonable certainty if not for the absence due to uniformed service. This is known as the “escalator position.” The principle behind the escalator position is that, if not for the period of uniformed service, the employee could have been promoted (or, alternatively, demoted, transferred, or laid off) due to intervening events. The escalator principle requires that the employee be reemployed in a position that reflects with reasonable certainty the pay, benefits, seniority, and other job perquisites, that he or she would have attained if not for the period of service (20 CFR Part 1002.193).

Timing for returning or reapplying. The amount of time a returning employee has to return to his or her position or reapply for work depends on his or her period of service (38 USC 4312(e)(1)).

Period of Service
Required Notice Time to Return to Work
Less than 31 days First full regularly scheduled work period following completion of the service (with an eight hour period for safe transportation).
More than 30 days but less than 181 days Fourteen days after the completion of service (or if impossible or unreasonable through no fault of the person, the next first full calendar day when application becomes possible).
More than 180 days Not later than 90 days after the completion of service.
A person who is hospitalized or convalescing At the end of the period that is necessary for the person to recover.

These time limits may be extended for up to 2 years if an individual is hospitalized or convalescing from an injury caused by active duty. This period for recuperation and recovery extends the time period for reporting to or submitting an application for reemployment to the employer and is not applicable following reemployment (20 CFR Part 116).

Required documentation on application for reemployment. The employee may be required to submit documentation to the employer in connection with an application for reemployment if the period of service exceeded 30 days. If the employee submits an application for reemployment after a period of service of more than 30 days, the employer may require the employee to provide documentation to establish that:

  • The reemployment application is timely;
  • The employee has not exceeded the 5-year limit on duration of service; and
  • The employee’s separation or dismissal from service was not dishonorable, based on bad conduct, or “other than honorable” (20 CFR Part 1002.121).

Reemployment position (less than 91 days of service). Following a period of service of less than 91 days, the employee must be reemployed in the escalator position. He or she must be qualified to perform the duties of this position.

If the employee is not qualified to perform the duties of the escalator position after reasonable efforts by the employer, the employee must be reemployed in the position in which he or she was employed on the date that the period of service began.

If the employee is not qualified to perform the duties of the escalator position or the pre-service position, after reasonable efforts by the employer, he or she must be reemployed in any other position that is the nearest approximation first to the escalator position and then to the pre-service position. The employee must be qualified to perform the duties of this position.

Reemployment position (more than 90 days of service). Following a period of service of more than 90 days, the employee must be reemployed in the escalator position or a position of like seniority, status, and pay. He or she must be qualified to perform the duties of this position.

If the employee is not qualified to perform the duties of the escalator position or a like position after reasonable efforts by the employer, the employee must be reemployed in the position in which he or she was employed on the date that the period of service began or in a position of like seniority, status, and pay. The employee must be qualified to perform the duties of this position.

If the employee is not qualified to perform the duties of the escalator position, the pre-service position, or a like position, after reasonable efforts by the employer, he or she must be reemployed in any other position that is the nearest approximation first to the escalator position and then to the pre-service position. The employee must be qualified to perform the duties of this position. The employer must make reasonable efforts to help the employee become qualified to perform the duties of each of the positions described above.

Missed skills tests or examinations. If an opportunity for promotion or eligibility for promotion that the employee missed during service is based on a skills test or examination, the employer should give the employee a reasonable amount of time to adjust to the employment position and then give a skills test or examination. If the employee is successful on the makeup exam and, based on the results of that exam, there is a reasonable certainty that he or she would have been promoted or made eligible for promotion during the time that the employee served in the uniformed service, the promotion or eligibility for promotion must be made effective as of the date it would have occurred had employment not been interrupted by uniformed service.

Termination. Individuals who serve more than 180 days cannot be discharged without cause for 12 months after reemployment (38 USC 4316(c)). Those who serve for 31 to 180 days cannot be discharged without cause for 6 months after reemployment. Individuals who serve for 30 days or less have no protected period.

Rate of pay. When the employee returns from service, his or her rate of pay is determined by the same escalator principles that are used to determine the reemployment position. If the employee is reemployed in the escalator position, the employer must compensate him or her at the rate of pay associated with the escalator position. The rate of pay must be determined by taking into account any pay increases, differentials, step increases, merit increases, or periodic increases that the employee would have attained with reasonable certainty had he or she remained continuously employed during the period of service.

When considering whether merit or performance increases would have been attained with reasonable certainty, an employer may examine the returning employee’s own work history, his or her history of merit increases, and the work and pay history of employees in the same or similar position. The escalator principle also applies in the event a pay reduction occurred in the reemployment position during the period of service. Any pay adjustment must be made effective as of the date it would have occurred had the employee’s employment not been interrupted by uniformed service (20 CFR Part 2001.236).

Seniority. Returning service personnel are to be regarded as having been on a leave of absence or furlough during their period of military service. Upon return, they are eligible for like seniority, status, and pay. Specifically, this means that returning service personnel will count their period of military service as part of their total seniority within the company for such benefits as pension eligibility and long-service vacation. Similarly, across-the-board increases, improvements in insurance or other benefits, and all the other rights or benefits that would probably have been derived from continued employment must be given to them on the same terms as if they had been working for the company during the military service period (38 USC 4316(a)).

Disability. USERRA provides that an individual with service-connected disabilities who is not qualified for employment in the position he or she would have attained if continuously employed (even after reasonable accommodation as required by the Americans with Disabilities Act of 1990 (ADA)) must be reemployed promptly in any other position of similar seniority, status, and pay for which he or she qualified or would become qualified with reasonable efforts by the employer or otherwise in a position that is the nearest approximation to the equivalent position, consistent with the circumstances of the employee’s case in terms of seniority, status, and pay. A position that is the nearest approximation to the equivalent position may be a higher or lower position, depending on the circumstances (38 USC 4313(a)(3); (20 CFR Part 1002.225). As with the ADA, the employer is not required to reemploy the disabled individual if doing so would be of such difficulty or expense as to constitute an undue hardship (38 USC 4312(d)(1)(B)).

Notice of intent to return. When the employee leaves his or her job to begin a period of service, the employee is not required to tell the civilian employer whether he or she intends to seek reemployment. Even if the employee tells the employer before entering or completing uniformed service that he or she does not intend to seek reemployment, the employee does not forfeit the right to reemployment after completing service. The employee is not required to decide in advance of leaving the civilian employment position whether he or she will seek reemployment after completing uniformed service (20 CFR Part 1002.88).

Failure to reapply for or return to work. If the employee fails to report for work or apply for reemployment on time, he or she does not automatically forfeit entitlement to USERRA’s reemployment and other rights and benefits. Rather, the employee becomes subject to the conduct rules, established policy, and general practices of the employer pertaining to an absence from scheduled work (20 CFR Part 1002.117).

If reporting or submitting an employment application to the employer is impossible or unreasonable through no fault of the employee, he or she may report to the employer as soon as possible (in the case of a period of service less than 31 days) or submit an application for reemployment to the employer by the next full calendar day after it becomes possible to do so (in the case of a period of service from 31 to 180 days), and the employee will be considered to have timely reported or applied for reemployment.

Back to top

Other Benefits


Employee training was once considered an optional benefit, an “extra” that only the most forward-looking employers provided to the most promising employees. Even now, when the economy turns downward, employee training is often the first to go, viewed not as an investment but as an expense to be disposed of in tough times. But today more and more employers understand that, far from being a frill, good employee training is necessary to a company’s success and that an intelligent, well-trained workforce is central to worker productivity and well-being.

Types of Training

Employers offer training in sales, customer relations, various work skills, management skills, computer skills, new technology, production methods, safety and health, hazardous chemical exposure prevention and treatment, communication skills, workplace law, sexual harassment, ethics, and diversity, according to a Bureau of Labor Statistics survey. Large companies often have on-site training departments; medium and small companies may hire consultants, or send their employees to training courses or community colleges. Both large and small employers often use online training or software programs.

  • Orientation. Because orientation is generally the employee’s first introduction to the organization, it is important to do it well. Properly introducing and assimilating new employees into the company will have a real effect on the kind of job they do in the future. Orientation training generally should not be done all at once and on the employee’s first day of work, but should happen over a period of weeks, or even months as part of the worker’s progress to maximum productivity, and to provide an ongoing check on the person’s absorption into the workplace.
  • Skills. Twenty-first century workers, from salespeople to factory workers to managers, need far more education and training than did their predecessors simply to maintain their jobs today, and handle the expanded duties they may have tomorrow. Experts recommend that businesses seek partnerships with local and state high schools, technical schools, community colleges, and government agencies, to enhance basic educational skills (e.g., math calculations, good writing skills).
  • Literacy. Poor basic skills in the workforce include illiteracy in the English language, which includes those for whom English is a second language, and an inability to deal with numbers--this, at a time when complex technology and international competition require ever more sophisticated manuals, statistical applications, and communication techniques. However, there are a few relatively inexpensive and effective steps employers can take to address this problem:
    • Test employees for job-related literacy and math skills. Many people become quite adept at hiding the fact that they can’t read, write, or handle numbers. If you have good employees with this problem, consider sending them to one of the many literacy or math programs run by local schools or community colleges.
    • Form a partnership with a local school. Thousands of employers nationwide have made arrangements with schools in their communities, in which the employer provides the school with management expertise and exposure to the business environment. In turn, the school provides educational help to your workforce.
  • Sexual Harassment. The Supreme Court ruled that employers may be held liable for sexual harassment if they did not exercise reasonable care to prevent and promptly correct any such behavior in the workplace—even if they were not aware of the specific actions in question. The decision highlights the great importance of sexual harassment training. With the increased costs of litigation and the many large jury verdicts, training programs are a relatively small, but absolutely critical investment. Effective sexual harassment training must involve all managers (to the highest level), supervisors, and rank-and-file employees.
  • Diversity. Diversity training refers to an employer’s attempt, through training programs, to create a workforce where employees of both genders and all ages, ethnic groups, races, and religions, as well as those with disabilities are represented at every level throughout the company and are able to work harmoniously.
  • Cross-Cultural. As a growing number of American businesses become global organizations, more employers are sending employees to foreign countries for a short duration, or a long stay. The kind of training provided these employees might make the difference between success and failure for these businesses. Today, training companies, private consultants, and most universities and colleges offer cross-cultural training programs. Such programs are generally country- or at least region-specific, and usually feature communication skills, social attitudes, religious mores, gender roles, and much more.
  • Apprenticeship Training. Apprenticeships are on-the-job training programs involving a “learner” engaged in classroom instruction or education, and also working under the guidance of an experienced member of the profession, trade, or craft. Apprenticeships are generally a function of private sector employers, unions, or trade groups, but often receive technical assistance or supervision from federal and state agencies. They usually take from 3 to 5 years and wages are generally progressive, increasing by agreed-upon increments as greater competence is acquired.

Training Required by Federal Law


The federal Occupational Safety and Health Act (OSH Act) has many safety and health training requirements, including the following:

  • Emergency plan. Before implementing an emergency action plan, employers must designate and train a sufficient number of people to assist in the safe and orderly emergency evacuation of employees.
  • Fire hazards. Employers must make known to employees the fire hazards of the materials and processes to which they are exposed.
  • Hearing protectors. Employers must provide training in the use and care of all hearing protectors provided to employees.
  • Processes and operations. Each employee presently involved in operating a process, or before operating a newly assigned process, must be trained in the operating procedures, with emphasis on the specific safety and health hazards, emergency operations including shutdown, and safe work practices applicable to the employee’s job tasks.
  • Personal protective equipment (PPE). Employers must train each worker who is required to use PPE. Training must cover, at a minimum, what PPE is necessary; when it is necessary; how to wear, use, and adjust the particular PPE; its proper care, maintenance, useful life, and disposal; and its limitations.
  • Respirators. Employees using respirators in their jobs must be trained in procedures to ensure adequate air quality, quantity, and flow of breathing air for atmosphere-supplying respirators.
  • Blood borne Pathogens. Employees with occupational exposure or potential exposure to blood or other potentially infectious materials must be trained before initial assignment and annually thereafter on blood borne diseases, modes of transmission, and prevention methods including the use of PPE.

Training Time as Compensable Hours

Time employees spend in meetings, lectures, or training is considered hours worked and must be paid, unless:

  • Attendance is outside regular working hours;
  • Attendance is voluntary;
  • The course, lecture, or meeting is not job related; and
  • The employee does not perform any productive work during attendance.

A training program is considered directly related to the job if the training is designed to help the employee handle the present job more effectively (but voluntary attendance at school outside the workplace, after hours is not work time, even if it is related to the employee’s present job). Time spent in training for a new job or in the development of new skills is less likely to be classified as compensable work time.

Back to top

Tuition Assistance

General Practice

Many employers encourage their employees to attend outside education or training programs by offering tuition-assistance, particularly in technical areas of study. Most commonly employers reimburse a specified percentage of the tuition to the worker upon successful completion of the course. These programs should have well-defined guidelines. Common policies include:

Prior approval by supervisor. Approval by a supervisor before a course is begun can ensure that the program will have some relationship to the employee’s future within the company.

Time of payment. For programs lasting a year or more, most employers make reimbursement at the end of each term rather than at the end of the entire program. Some employers arrange to have schools bill the company directly, so the employee/student does not have to pay the tuition and then wait to be reimbursed.

Verification. Requiring the employee/student to obtain verification of successful completion of the program of study, and/or to submit receipts, is a prudent policy.

Performance standards. Many employers require employees to obtain a specified grade to be entitled to reimbursement.

Tax Treatment of Tuition Refunds

Unless employer-provided tuition assistance qualifies for a tax exemption under a specific provision of the Internal Revenue Code (IRC), it is considered as taxable income to the employee. Tax-free tuition assistance is much more valuable to the employee and also saves the employer its share of employment taxes. Tuition assistance qualifies for tax-free status if the aid is provided under an education-assistance program that meets the requirements of IRC Sec. 127 or if the courses taken are directly job related so that the cost is considered to be an employer business expense under IRC Sec. 162.

Non-Job-Related Aid—Section 127 Educational Assistance Programs

IRC Sec. 127 allows employers to provide up to $5,250 per year of tax-free educational assistance to an employee. The exemption was extended through 2010 by the Economic Growth and Tax Relief Reconciliation Act of 2001 and through 2012 by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. This tax exclusion applies even if the courses taken are not work related.

Graduate courses. An EAP may cover the costs of graduate-level courses, including courses of the type “taken by an individual pursuing a program leading to a law, business, medical, or other advanced academic or professional degree.”

Section 127 requirements. To qualify for favorable tax treatment, an employer’s Section 127 program:

  • Must be a separate written plan for the exclusive benefit of employees
  • May not discriminate in favor of officers, owners, or highly compensated employees or their dependents
  • May cover books and other expenses in addition to tuition
  • May not cover the cost of tools and supplies that the employee may retain after completion of a course, or meals, lodging, or transportation expenses
  • May not cover a course involving sports, games, or hobbies
  • May be conditioned on successful completion or attaining a particular grade in a course

Expiration date. For many years, Sec. 127 was a temporary provision of the tax code but was made a semi-permanent (through 2010) feature in 2001 and has now been extended through 2012.

Work-Related Aid

Employees generally do not have to pay taxes on the value of work-related tuition assistance. Work-related educational assistance is deductible by the employer and tax free to the employee as an employer business expense under IRC Sec. 162. There is no dollar limit on work-related educational assistance. There is also no requirement that the program be in writing, although written guidelines are advisable.

A course only qualifies as work-related education if it maintains or improves the skills required by the business or trade or meets an employer’s express requirements or requirements imposed by law to stay in a particular job. The most obvious example of work-related courses are courses taken to fulfill continuing education requirements for licenses or certificates that must be held to perform a particular job. Other courses that will usually qualify are refresher courses or courses on the latest developments in an employee’s field.

Warning: To qualify as work related, a course must maintain or improve the employee’s skills for the current job, not for a promotion or transfer to another job.

No Reporting Requirement

Tuition reimbursement programs are not covered by ERISA’s reporting and disclosure requirements. In 2002, IRS also did away with the requirement to file a Form 5500. IRS made the exemption retroactive to all prior years for which the forms had not yet been filed. Thus, tuition reimbursement programs have no annual reporting requirements for past, present, or future plan years.

Back to top

Moving / Relocation

The Changing Nature of Relocation

There are reasons for moving employees, in good times and in bad. Companies in the throes of retrenchment may want to close and consolidate several worksites, requiring workers that want to stay with the employer to move. An employer may be bought, or companies may merge, meaning relocation. An employer may hire new workers that must move to the work operation from states all over the nation. An employer may move operations to a foreign country and require managers to move to that country or may hire a valued worker that must move here from another country.

However, with the cost of relocating a homeowner estimated to be between $50,000 and $65,000, and the cost of relocating a renter estimated at between $15,000 and $20,000, relocating an employee has major financial implications, even though a good portion of these costs are tax deductible. With the availability of constant communications, including for meetings, employers must decide whether the on-site presence of a worker is worth subsidizing the move and for how much. Also consider that some experts theorize that employees who are relocated are more likely to leave a company than non-relocated employees.

Relocation Funding

Subsidies as incentives. Relocation subsidies or funding are an important incentive for employers who wish newly hired or present employees to move to a new area. Many employers assume part or all of the costs incurred by an employee transferred from one place of operation to another within the company; some employers also underwrite these costs for new hires. This practice, once limited to newly hired, executive-and professional-level employees, may be extended to any skilled or experienced workers.

What is covered. Costs covered by employers typically include the packing, transport, and unpacking of household effects, disconnection and reconnection of major appliances, premiums for insuring items being moved, and the transportation of the employee and the employee’s family. If the distance is great, the cost of transporting a car might also be covered. A variety of other reimbursements are also possible.

How much to cover. In deciding upon a compensation package for new or transferring employees, employers need to make an analysis focusing upon the individual worker. Just about all employees want to “stay whole.” Therefore, if a present employee is to be transferred to another city or state, the cost of living may be different; if it is more expensive, the employer needs to take that into account and decide how to accommodate the new needs.

Many companies restrict payment to the cost of transferring “household furniture and effects,” defining the term to exclude such items as boats, power tools, building materials, and trailers. The cost of moving cats, dogs, and other common pets is often covered, but the transport of exotic animals is ordinarily not included. Although the practice is uncommon, some employers will not pay to move goods above a specified total value or total weight. Some companies pay a proportion of the moving expenses at the time of the move, and agree to reimburse the employee for the remainder if the employee is still on the job at the end of 6 or 12 months.

Estimates and payment. Estimates on moving costs are not always dependable. However, under Interstate Commerce Commission rules, the householder need not pay more than 10 percent above the original estimate, which makes estimates of some value. Note that most movers will refuse to unload unless paid by cash, money order, or certified check at point of arrival.

Additional transfer arrangements. In addition to the actual costs of moving, some employers provide for the reimbursement of living expenses (or a per diem allowance) for a specified number of days at the new location while the employee is seeking living accommodations. In a few cases, employers reimburse the employees for advance trips to seek accommodations for the family at the new site.

Guaranteed sale of residence. A standard practice has been for the employer to guarantee the sale of a relocated employee’s house at a particular price. Basically, the employer agrees to buy the house if it isn’t sold when the time comes to move. In a depressed housing market, these agreements become risky (they effectively turn the employer into a real estate speculator). Because there are a number issues, including tax consequences associated with buying and selling an employee’s house, most employers contract the work to relocation companies. Employers should also consult a good real estate lawyer before developing and implementing a policy of this kind.

Turnover after relocation. In order to guard against employer loss of relocation payments due to employee termination within a few months of relocation, employers might require employees to repay some of the relocating expenses if they voluntarily leave within a set period of time.

International Relocation

International moves are extremely costly for an employer, and there are particular, unique pressures associated with international moves, especially for spouses and children. Any plans for international relocation should be carefully reviewed to determine if the employee could accomplish the same goals through telecommunicating and/or periodic trips abroad. If an employer does determine transfer is preferable, the company should contract with a vendor that handles these types of moves. The Workforce Mobility Association (www.worldwideerc.org) is a good resource.

Relocation is always subject to negotiation, but is difficult to administer and frequently very expensive. Some experts believe that it is better to make a nice offer and keep the deal clean. Many people do not wish to move, so relocation is usually not an issue.

Back to top

Vacation / Personal Time

There are two things to keep in mind about employees and vacations:

  • First, many employees, 68% of them according to one survey, say the benefit they most value is time off.
  • Second, data reveals that more than 415 million vacation days went unused in 2006.

Americans work hard and they like to play hard. Most employers recognize the value of time off and make ample vacation days available to employees. Work/life balance programs continually strive to help employees stay fresh and focused, and most report that they appreciate these perks.

No Federal Law

Although there is no federal law that entitles private sector employees to paid or unpaid vacation, most employers do give employees a paid vacation, and most employees consider it to be one of their most important benefits. There is a growing body of state law—both statutes and court decisions—that does govern how employers administer vacation time, including whether and how much employees must be paid at termination for accrued but unused vacation. Employers must know their own state laws in order to develop a comprehensive policy covering eligibility, accrual, carryover, forfeiture, administration, pay upon termination, and integration of vacation policy with other state laws, and to ensure strict compliance and consistency of administration. The policy should be communicated to employees at the time they begin work (in a number of states, this is required).

Vacation Accrual

Accrual is simply the particular method by which vacation time is accumulated; in most states, employers may set accrual methods up however they wish. Many companies require employees to work a certain number of months before earning any vacation credits.

Standard Practice

According to BLR’s survey of employee benefits, standard vacation practice is as follows:

  • Two weeks. Employees receive 2 weeks of vacation after 1 year of work.
  • Three weeks. Most employers require employees to work for 5 full years to qualify for 3 weeks of vacation.
  • Four weeks. Most employers require 10 or more years of work to qualify for 4 weeks of vacation.
  • Five weeks. About one-third of survey respondents offer a fifth week, but more than half of them make eligibility conditional on 20 or more years’ service.

Family and Medical Leave Act (FMLA) and Vacation

The federal FMLA requires employers to provide up to 12 weeks of unpaid leave to eligible employees for a variety of reasons related to family and medical care. Generally, leave taken under the federal FMLA is unpaid. However, employees may be eligible to receive money or pay while they are on FMLA leave by substituting paid vacation, sick, personal, or other paid leave time for unpaid FMLA leave time. The 2009 FMLA regulations changed and substantially simplified the rules for substitution of paid leave for unpaid FMLA leave. Under the final regulations, if an employee chooses to substitute accrued paid leave for FMLA leave, he or she may do so. If an employee does not choose to substitute accrued paid leave, the employer may require the employee to substitute accrued paid leave for unpaid FMLA leave pursuant to the employer’s established policies for use of paid leave.

Vacation and Termination

Some state laws consider vacation time the equivalent of wages; therefore, it must be paid at termination. In some states, court decisions have said that if an employer offers paid vacation and the employee has earned it by working through the accrual period, the time must be compensated at termination. A number of states prohibit accrued vacation time from being lost (“forfeited”) for almost any reason. Some states do not require that unused vacation be compensated at all. Some employers opt to compensate unused vacation regardless of the law, or under certain specified circumstances.

Back to top


National Holidays Observed by Government Employers

The federal government has designated certain days as “national holidays.” Federal government offices and national banks close their offices in observance of national holidays (5 USCA Sec. 6103).

Most states observe the same holidays as those observed by the federal government. There are variations, however.

National holidays.1 Days designated as holidays by the federal government are:

New Year’s Day January 1
Inauguration Day January 20 (every 4th year, following a presidential election)
Birthday of Martin Luther King, Jr. Third Monday in January
Washington’s Birthday2 Third Monday in February
Memorial Day Last Monday in May
Independence Day July 4
Labor Day First Monday in September
Columbus Day Second Monday in October
Veterans Day November 11
Thanksgiving Day Fourth Thursday in November
Christmas Day December 25

1. Federal holidays are moved to a Friday if they occur on a Saturday, and to a Monday if they occur on a Sunday.
2. The federal holiday is known as Washington’s Birthday, but the day is celebrated by some as Presidents Day.

Private Employment

Private employers are not required to observe national holidays, except for banks that follow the closing schedule of the Federal Reserve Board. Granting paid time off for holidays in private employment is more a matter of custom and union contract negotiation than law.

Standard Holidays

Private employers almost universally observe six holidays. The “standard six” are New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. After the standard six, the Friday after Thanksgiving, Good Friday, and Presidents Day are the next most commonly observed holidays across the nation. However, employers have discretion when it comes to determining whether to grant holidays and, if so, which days to observe.

Holidays Other Than Christmas

For many in America, the holiday season is the annual splurge of parties, celebrations, and consumption that spans from Halloween to New Year’s Day. Somewhere between the candy, turkey, and champagne, most workplaces stop to observe Christmas. But Christians aren’t the only ones with sacred holidays during the holiday season. Buddhists, Jews and Muslims also celebrate during this time. Employers are required to reasonably accommodate religious practices unless accommodation would cause an undue hardship on the conduct of business.

Overtime Issues

The federal Fair Labor Standards Act (FLSA) requires that covered employers pay nonexempt employees 11/2 times their regular rate for all hours worked in excess of 40 in a workweek. Because time off for holidays is not “hours worked,” holiday time is excluded from the overtime calculation. (However, although they are under no statutory obligation to do so, some employers choose to include holiday time off in the overtime calculation.)

Similarly, the FLSA does not require employers to pay time-and-a-half to employees who work on designated holidays unless that time exceeds 40 hours in the workweek.

Back to top

Wellness Plans

The National Wellness Institute defines “wellness” as “an active process through which people become aware of, and make choices toward, a more successful existence.” Wellness is intentional—it is a choice people make when they decide to be well. Therefore, workplace wellness programs exist to encourage and assist employees in taking steps to be well.

Wellness Encompasses All Aspects of Life

The concept of wellness encompasses every aspect of our lives. In 1979, Dr. Bill Hettler, cofounder of the National Wellness Institute (http://www.nationalwellness.org), developed a model called The Six Dimensions of Wellness, which is generally accepted by the wellness community. The six dimensions are:

  • Physical bodily health through exercise, nutrition, and abstaining from harmful activities, such as smoking
  • Emotional health through learning to recognize, express, and control feelings and moods
  • Intellectual mental health through developing creativity, learning ability, and problem-solving skills
  • Occupational job satisfaction through learning individual aptitudes and skills and finding meaning in work
  • Social community connections through learning the part we play in our interconnected world
  • Spiritual larger life questions through learning to choose and live by a set of values that give meaning to our lives

Comprehensive Workplace Wellness Programs

The Patient Protection and Affordable Care Act (PPACA) provides a grant program to assist small businesses that provide comprehensive workplace wellness programs. Grants will be awarded to eligible employers to provide their employees with access to new workplace wellness initiatives. The award of grants began in 2011 with $200 million appropriated for a five-year period.

Eligible employer. An eligible employer is an employer that:

  • Employs fewer than 100 employees who work 25 hours or more per week, and
  • Did not have a workplace wellness program as of March 23, 2010 (date of PPACA’s enactment).

The PPACA requires the Secretary of Health and Human Services to develop program criteria that are based on research and best practices. A comprehensive workplace wellness program must be made available to all employees and must include:

  • Health awareness initiatives (including health education, preventive screenings, and health risk assessments);
  • Efforts to maximize employee engagement (including mechanisms to encourage employee participation);
  • Initiatives to change unhealthy behaviors and lifestyle choices (including counseling, seminars, online programs, and self-help materials); and
  • Supportive environment efforts (including workplace policies to encourage healthy lifestyles, healthy eating, increased physical activity, and improved mental health).

Employers may submit applications that include a proposal for a program that meets the criteria and requirements as described in the PPACA and developed by the Secretary.

Setting Up a Workplace Wellness Program

There are a number of steps employers should take when setting up a wellness program to make sure it will be effective. These include obtaining support from senior management, assessing the current level of wellness in the workplace, creating a customized operating plan, launching the wellness plan, and communicating with and educating employees about the plan. Finally, employers should continually measure and assess the effectiveness of the workplace wellness program, adjusting as necessary when needs are identified.

Suggestions for Wellness Programs

Ideas that employers can use in their wellness programs are as varied as the employees in an employer’s workforce. It may take some trial and error to find the ones that create an enthusiastic response and achieve high levels of participation. Some successful programs have included one or more of the following:

  • Voluntary screening to check blood pressure, cholesterol levels, and other risk factors
  • Personal finance education and counseling
  • Smoking cessation program
  • Financial incentives for voluntary participation in healthcare assessment
  • Reduced copayments for drugs that treat asthma, diabetes, hypertension, and other chronic conditions
  • Health insurance discounts for nonsmokers
  • Health insurance surcharges for smokers
  • Discounted gym memberships
  • Partnering with local restaurants to provide healthy lunch options
  • Reimbursement for membership in Weight Watchers® or other weight management programs
  • Healthy food options in company cafeteria or vending machines
  • On-site medical facility, fitness center, and pharmacy for employees’ use
  • No out-of-pocket cost to employee for preventive care, e.g., annual physical exam, well-child exams, mammograms
  • Flu vaccinations
  • Newsletters, e-mail notices, bulletin board postings, and other awareness strategies to increase participation in wellness initiatives

Both large and small employers can implement wellness programs that help reduce the cost of health care and improve the health of employees. Careful assessment of workforce needs, tailoring of programs to meet those needs, and a comprehensive health management strategy are all components that will help an employer’s wellness program succeed.

Also, companies must present the program positively and in a way that engages the employees. Companies that fail to make their wellness programs engaging ensure that employees either will not participate, or will participate only grudgingly. Both attitudes defeat the purpose of the program. If introduced correctly, people will accept the program and embrace it. They will feel that their company cares about their health and wellbeing. And, that feeling—‘my company cares about my wellbeing’—is the number one driver of employee engagement.

Back to top


Featured Free Resource:
Cost Per Hire Calculator
Copyright © 2022 Business & Legal Resources. All rights reserved. 800-727-5257
This document was published on https://Compensation.BLR.com
Document URL: https://compensation.blr.com/guidance/Compensation-101-Benefits/