• Pay-as-you-go: Employees may pay their contributions on an ongoing basis throughout the leave. For a paid leave, contributions will continue to be taken on a pre-tax basis. Since the paid sick leave and EFMLA benefits provided by FFCRA law are both paid, it is likely that contributions for most such leaves will simply continue under the pay-as-you-go method. For an unpaid leave, contributions must be made on an after-tax basis (because there is no compensation from which a pre-tax contribution can be taken). • Catch-up: Employees may pay contributions owed from the leave on a catch-up basis after returning from leave. An agreement is typically arranged between the employer and the employee that this method is elected. These payments may be made on a pre-tax basis and are typically spread out over a number of paychecks (if not the entire remainder of the plan year). Employers may terminate coverage if an employee fails to pay required contributions during a leave. Importantly, such a termination is not a COBRA qualifying event. A COBRA event would be triggered by not returning from an FMLA leave, but this would potentially leave a gap in coverage for the employee.
Pay for Exempt Employees
Basic Rules Exempt employees are those exempted from the requirement to be paid overtime wages. Employers are obligated to pay exempt employees for a full one-week period unless the exempt employee does no work at all for that one-week period. Even if full-time work is not available for the employee or the employee does not work full-time for other reasons, if the employee works for part of a week, they must be paid their full salary for that week. As Applied to the COVID-19 Situation If the goal is to save money, it is best to ensure that the layoff or furlough covers the employer’s established seven-day workweek for exempt employees. It is also important to communicate to exempt employees that they should do absolutely no work during any week that they are furloughed or that the company is closed. If exempt employees do any work during that time, they will need to be paid their normal weekly salary.
General Rules for Pre-tax Elections
The Irrevocability Rule In general, pre-tax elections made under a Section 125 Pre-tax plan are irrevocable and cannot be changed unless a qualifying Change in Status occurs. This applies to: • Health plan elections (because premium contributions are paid on a pre-tax basis) • Health FSA elections • Dependent care FSA elections Employers are prohibited by Section 125 regulations from allowing any election changes except those that are specifically outlined.
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