Furloughs and Healthcare Benefits: What Employers Need to Know

April 3, 2020
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March 23, 2020
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Today, many employers are having candid conversations on how to best care for their employees from a benefits perspective while also keeping their company financially stable. At Innovo, our mission is to help benefits professionals make informed decisions – every day, and during these trying times. We have gathered some advice that we’ve already shared with clients and are pairing it below with some vital carrier information to create as much clarity as possible. Further, you can find more information about the FFCRA leave laws here

First, let’s define how a furlough differs from a layoff, in the context of employee benefits plans.

Furlough: An employer requires employees to work fewer hours per week at a reduced salary or more typically, to take unpaid time off. Note that exempt employees may still need to be paid on a salary basis to avoid jeopardizing their exempt status under the Fair Labor Standards Act. A furlough is thought to be a temporary situation; when the company has more work, it will bring furloughed employees back on. The company does not formally terminate the employee from employment in a furlough. It is treated more like an unpaid leave of absence.  

Layoff: While sometimes also considered a temporary action, a layoff connotes a more permanent outcome. It occurs when an employer is not able to pay an employee any compensation due to lack of work or the financial state of the company (there is no cause on the employee’s part).  The employee is generally formally terminated from the company in a layoff. If the company’s fortunes turn around, bringing the employees back on is more involved than in a furlough situation. The process in that case generally mirrors a new hire course of action. 

Here’s What We’ve Been Talking about with Clients

Insurance Carrier Flexibility on Furlough

Increasingly, insurance carriers are providing flexibility in this particular time regarding furlough. In most cases, carriers will allow employees to remain on benefits plans during furlough even though they are working zero hours. Most carriers still require timely payment of premiums, and many have time limits on this flexibility. The impact of this flexibility is that employers do not have to process COBRA for these employees, they may continue the life/disability coverage, and generally treat the employees like they are on an approved FMLA absence. Carrier positions can vary on this, so please check with us for specific carriers. Also, there is increasing flexibility on FSA elections, and even dependent care elections as childcare is no longer available for many people. Again, check with us for the latest developments on carrier flexibility.

Collection of Insurance Premiums

What we’ve been advising is to look at collecting insurance premiums during the current Coronavirus situation the same way you think about collecting premiums during an FMLA leave. Do you generally ask employees to write checks throughout their FMLA leave, or do you wait until they come back? A major difference now is the volume of employees being furloughed. If you’re covering premiums for employees, the sum can represent a sizable amount. The other consideration – what if you’re not able to bring the employees back? How will you recoup those premiums from them?

Plan Documents

When considering furloughing employees, carefully consider your benefits plans’ formal documents under ERISA and Section 125 of the Internal Revenue Code. For instance, if plan documents state employees need to work 30 or more hours per week to be eligible for benefits, you’ll have to change the requirement to account for this. We’re counseling clients to work with us to update these documents to remain in full compliance.

Effort and Time Involved

Is a furlough just a precursor to a future layoff? Consider the effort of altering plan documents and communicating with staff, plus emotional strain required to furlough employees today, only to turn around and lay them off shortly thereafter. Our advice: it’s not worth it to furlough if you think the furlough will only last 2-3 weeks before you need to proceed with a layoff. Also, think about your employees’ wellbeing. A layoff, if inevitable, may give them a bit of certainty and the ability to move forward.


The situation is changing day by day, and we’ve heard from employers who are furloughing in waves. This gives them the flexibility to keep enough employees at the ready to handle rising demands. For other clients who can confidently forecast, a cleaner break works best for them and they choose to furlough in bulk.


The Act states that employers of companies larger than 100 employees must give employees 60-days’ notice of an impending layoff. Protected employees include those who are terminated or laid off for more than 6 months, or have their hours reduced by 50% or more in a 6-month period. There are exceptions, such as unforeseen business circumstances and natural disasters. However, employers must offer employees as much advanced notice as possible. Lastly, in addition to the Federal law, states may also have their own versions. We advise seeking the advice of an employment attorney to remain in compliance with all applicable laws.


The Coronavirus Aid Relief and Economic Security Act is the massive stimulus bill recently signed into law, and offers help to businesses affected by the Coronavirus pandemic. Loans through the CARES Act can help companies weather the storm, and possibly reduce the need to furlough or lay off employees. It’s a complex calculation to undertake, and we’re advising our clients to carefully think it through and work with tax and legal counsel as appropriate.

Your Unique Situation

For few employers today, it’s business as usual. You and your employees have your own realities you need to face during this crisis and the situation remains fluid. To make intelligent decisions that best meet your needs, consider your leave policy and consult with legal counsel for advice on how to treat your employees.

Please remember that we are here to help you get information from your carriers, assess your situation and guide you through the difficult choices ahead. Know that carriers are updating their Coronavirus policies daily and we are here to share whatever new information we gather. This applies to Innovo clients, as well as any other company. We are all in this together.

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