The Employee Benefits Your Start-up Probably Needs
Federal law requires employers to provide employees with different types of coverage. We covered those different requirements on our Required Employee Benefits for Start-ups blog post. If you didn't know there were things you had to provide, make sure you read it before you leave, or else you may find yourself in a doozy later on.
For now, let's assume you've completed that due diligence and are ready for the next step. Perhaps you need to review your state's requirements, or maybe your company is growing and you want to know if this growth will change your obligations. We'll help you make sense of it. Now, let's dive in and see which employee benefits may be required if your business meets certain criteria.
Surprisingly, there is no federal law that requires employers to provide health insurance to employees. However, the Affordable Care Act (ACA) imposes penalties on certain employers that fail to provide health insurance. The ACA states that employers with more than 50 full-time employees (or the equivalent in part-time employees) must offer acceptable health insurance to 95% of their full-time employees. If an employer does not provide insurance, they must pay a penalty of several thousand dollars per employee to the IRS. If you have fewer than 50 full-time employees (or the equivalent in part-time employees), these penalties do not apply to you.
There are two primary ways an employer may have to pay the penalty. A penalty must be paid if an employer does not offer coverage to “substantially all” employees. This language is interpreted as 95% of full-time employees and their dependents and at least one full-time employee receives subsidized coverage through the ACA Exchange. The second penalty is incurred if an employer offers insurance but it doesn’t meet affordability thresholds.
ACA language can be tricky to navigate, especially if you are an employer that has a mix of full-time and part-time employees. Employers often don’t know what qualifies as a part-time equivalent of 95% of full-time employees. This is just one reason that it is important to seek the advice of an insurance expert when choosing health insurance options for your business and employees.
What if an employee leaves the company? Does an employer still need to provide health insurance to them? Under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), employers with 20 or more employees must allow their employees to continue to receive healthcare coverage at the employee’s expense. This allows former employees to remain on the same health insurance plan that they had as an active employee.
Typically, federal COBRA law requires that coverage extend for 18-36 months from the date of the qualifying event. COBRA coverage applies to qualified beneficiaries: those individuals covered by a group health plan on the day before a qualifying event that caused the individual to lose coverage. These qualified beneficiaries can include the employee, the employee’s spouse (or former spouse), and the employee’s dependents.
To protect workers at smaller companies, some states have enacted "mini-COBRA." This is a state-level program that requires employers with fewer than 20 employees to continue health insurance coverage following a qualifying event. Often, the coverage period for mini-COBRA is much shorter than the 18-36 months allowed by federal COBRA. In Pennsylvania, mini-COBRA allows employees to purchase continued healthcare coverage for nine months with no extensions. Each state varies, so it is important to check which requirements apply to you.
Disability insurance provides partial wage replacement insurance coverage to employees who suffer non-work-related injury or illness. As of March 2021, disability insurance is only mandated in these states and territories: NY, CA, NJ, HI, RI, and PR. As an example, if you are an employer in Pennsylvania and you have an employee in New York, you need to provide disability insurance for the New York employee.
States that require employers to secure disability insurance have their own unique regulations and criteria. For example, California provides up to a year of benefits to eligible workers, but Rhode Island has a program that provides up to 30 weeks of disability benefits.
What makes an employee eligible for disability insurance and the amount of compensation paid all vary by state. Most state-mandated disability programs only cover short-term disability, so some employers choose to offer long-term disability as well. In states where disability insurance is not mandated, it is at the discretion of the employer to offer short and/or long-term disability.
Family and Medical Leave
The Family and Medical Leave Act (FMLA) requires that businesses with more than 50 full-time employees within a 75-mile radius of a location be provided unpaid, job-protected leave for family and medical reasons. Under this protected leave, the employee is guaranteed to the continuation of group health insurance coverage that the employee would have received had they not taken leave. This means that special terms and conditions cannot be applied to employees who take this leave. FMLA ensures that eligible employees are entitled to 12 weeks of leave in a 12-month period for:
- the birth of a child and care for the newborn child within one year of birth
- the adoption or fostering of a child and care for the newly placed child within one year of placement;
- the care of an employee’s spouse, child, or parent who has a serious health condition;
- a serious health condition that makes the employee unable to perform the essential functions of his or her job;
- any qualifying exigency arising out of the fact that the employee’s spouse, son, daughter, or parent is a covered military member on “covered active duty”
Eligible employees are entitled to the above benefits or to Military Caregiver Leave. Military Caregiver Leave provides 26 workweeks of leave during a single 12-month period to care for a covered service-member with a serious injury or illness if the eligible employee is the service-member’s spouse, child, parent, or next of kin.
Many states require that employers provide adequate time off for employees to vote or fulfill jury duty responsibilities. In most cases, the time off granted for voting only covers a few hours — just enough time to vote — but will not grant time off for employees who want to volunteer to work at a polling location. We found this helpful article and interactive map where you can quickly view your state's voting requirements. In Pennsylvania, where we are headquartered, no law requires employers to provide time off to vote, but an employer also cannot threaten or intimidate employees to influence their political opinions or actions.
Similarly, in Pennsylvania, an employer cannot threaten or penalize an employee who is called to serve as a juror for jury duty. The specific details of what is and is not permitted may vary in your state, so we recommend that you consult your state's laws or a knowledgeable professional if you are unsure what applies to you.