Direct Bill of Health Insurance Premiums to Employee While on Leave

[waid10]

Hi. While an employee is out on leave and not receiving a paycheck, the employer direct bills the employee for their health insurance premium. The employee pays the premium with after-tax dollars. When the employee returns to work, does the employer have any reporting or other obligation regarding the fact that if the employee had been actively working, the premiums would have been paid with pre-tax dollars?

[Brian Gilmore]

Nope, they'll just restart pre-tax payroll contributions through the Section 125 cafeteria plan upon return.

More details:

https://www.newfront.com/blog/health-benefits-protected-leave-2

Paying for Group Health Plan Coverage

The Section 125 rules provide three ways to handle collection of the employee’s payment:

1. Pre-pay: Under the pre-pay option, the employee is given the opportunity to pay for the continued coverage in advance (i.e., before commencing the leave). In this case, the employee could elect to reduce his or her final pre-leave paycheck with pre-tax salary reduction contributions that will cover his or her share of the contributions for all or a part of the expected duration of the leave.

Two important limitations:

• The pre-pay option cannot be the sole option offered. So if the company offers this approach, it will have to also offer at least one of the other two.
• Pre-pay cannot be used to pay for coverage in a subsequent plan year on a pre-tax basis. If the leave is expected to spill over into a subsequent plan year, the employee could only pre-pay on a pre-tax basis for the part of the leave in the first plan year.

2. Pay-as-you-go: Under this approach, the employee pays for his or her share of the cost of coverage in installments during the leave. If the leave is paid leave, the employee could pay on a pre-tax basis from the payments he or she is receiving. Otherwise, these payments would have to be made on an after-tax basis (e.g., by check).

3. Catch-up: In this approach, the employee agrees in advance to make catch-up contributions upon returning from leave for the cost of coverage during the leave. Although not clear, it appears that catch-up contributions may be made on a pre-tax basis even if the leave straddles two plan years.

In general, employees on paid leave will probably want to go with option #2. Employees on an unpaid leave will probably want option #1 or #3 so that they can pay on a pre-tax basis.

 

Slide summary:

2023 Newfront Health Benefits While on Leave Guide