Please note that this is general advice only. Clients are advised to discuss this topic with HR professionals and/or their lawyers in order to determine specifically how they need to handle these situations.
Severance and extension of benefits is likely the last thing on your mind when you make a new hire. You realize employees won’t be with you forever, but you figure firing them later will be just a simple thing.
Unfortunately, without a background in HR, management or law, we’ve seen many of our clients set themselves up for huge liability issues.
If someone leaves, quits, or a contract ends, our client can give us notice to take that person off the benefits plan and everything is fine. But if that person was fired or given a layoff, there are definite regulatory or legal requirements the employer has to follow.
In that case, when a client calls us up to ask that Bob’s plan be terminated at noon, because that’s when he’s being terminated, alarm bells go off. It’s not that simple. Any employee with a head on their shoulders will fight for extension of benefits.
You can’t just fire someone and stop paying them, and benefits are part of that remuneration process. There are regulatory requirements to extend certain benefits such as long-term disability for a period beyond termination. Depending on the severed employee’s years of service, that might be one week, or up to a maximum of eight weeks, if they qualify.
As for other benefits that are not regulated, an employer may offer to extend those as part of a negotiated severance package. For example, a package may include salary continuance and health and dental benefits for one year, or until the severed employee finds another job – whichever comes first.
The process of extending benefits for terminated employees
It’s essential for insurance companies to be informed as early as possible in this process, and updated through all the stages. It is not sufficient to say “Bob’s severance package is about to run out, so please terminate his benefits on that date.”
Insurers may not extend certain types of benefits into a severance period. For example, they may exclude travel benefits because the person may want to travel in riskier ways than they would if they were still employed.
Ideally, the insurance company will write a letter of approval for the extension of benefits and any requested changes (e.g., taking off travel benefits), so all parties are clear about what’s going on.
A cautionary tale about the extension of benefits
There are many legal nuances in extending benefits for terminated employees. In one case, an employer asked us for general advice about the minimum regulatory requirements. What we weren’t told was that the individual in question was a very long-time employee and therefore entitled to much more than those minimums.
The employee took our client to court and the employer was ordered to reinstate the benefits, but the insurance company refused due to the time gap. The employer was left on the hook to pay those benefits. That’s why employers must be very cautious in ensuring they’ve sealed the deal – legally – before they instruct the carrier to take an employee off.
Do your homework upfront, before you terminate an employee. It may cost more, but if it went to court and the employee deserved more, you’ve wasted your time and you’ll have to pay anyway.
Be ready to say, “Bob, you’re fired. Here is the offer.” Make sure that is a severance package offer you’ve research, you know is legal, and conforms with what Bob ought to get.
So when our administrative staff at ASSOCIUM asks lots of questions about your request to terminate someone’s benefits, know that we’re just doing our job. We’re not second-guessing you, but we want to make sure you’re covered. More than half the time, we do find an issue and bringing it to your attention can save you a lot of grief.
ASSOCIUM Benefits is a very unique employee group benefits provider, focused on supporting benefits advisors and their employer clients. We provide Brokers and Plan Sponsors with a range of solutions from traditional group benefits to more customized, cost and tax effective employee compensation. Let’s connect to find out how we can help.