By: HUB’s EB Compliance Team

Benefit end dates typically come in just two varieties: either benefits eligibility ends on the date of termination or at the end of the month in which termination occurs. As an example, if an employee were to terminate on October 12th, benefits would typically terminate either on the 12th or 31st, depending on the terms of the plan. As a result, small variances in dates can have a major impact on when an employee gains or loses eligibility for an employer’s plan.

End of the Month Termination Pros and Cons

When coverage ends at the end of the month of termination, employers face potential risks if employees terminate early in the month. These risks include the risk of unpaid employee premiums (depending on the employer’s payroll cycles and whether employee premiums are collected in advance or in arrears) as well as the risk associated with claims incurred after the date of termination. Employers must also pay the employer portion of the cost of coverage for the entire month. Because of this, employers need to be especially conscious of ensuring termination dates are properly processed. 

On the other hand, terminating benefits as of the end of the month, particularly for medical, dental and vision benefits, makes administration easier. COBRA election notices, for example, will have a uniform coverage end date and the election timeframes are simpler for both the employer to administer and former employees to understand. Particularly in large and/or high-turnover populations, sometimes ending coverage at the end of the month makes the most practical sense.

(De)Termination Dates

Many times, termination dates are clearly defined, such as when an employee provides a certain amount of advance notice, or when the employer and employee mutually agree upon a separation date. Other times, the events leading up to the termination leave the date of termination up for debate. For example, employees who simply fail to show up to work or employees who don’t return from approved leaves of absence and don’t communicate their intent to the employer. In these types of circumstances, determining the termination date can be difficult.

Example – Job Abandonment

Imagine Brandon works for BH Electric (“BH”) and is enrolled in their group health plan. He has worked there for several years but isn’t happy and is looking for another job. Eager to leave BH as soon as he can, he accepts an offer from another employer to begin employment on Monday, October 5th, but doesn’t notify BH of his intent to separate. Brandon works his regular shift on Monday and Tuesday, September 28th and 29th, but decides he wants a few days off before starting his new job. He doesn’t show up or call in sick on September 30th, October 1st or 2nd. 

BH has an attendance policy that states that the failure to show up or call in for three consecutive work days will be regarded as job abandonment and a resignation of employment. Brandon’s failure to show up to work on Friday, October 2nd was Brandon’s third consecutive workday no-call/no-show which will trigger his termination. However, when is Brandon’s actual date of termination?

Brandon didn’t violate the BH Electric attendance policy until October 2nd, so this seems like the clear termination date. On occasion, employers in BH’s position may want to argue that Brandon’s last day worked was September 29th and therefore that should be his termination date. Why take this position? If BH’s benefit plans terminate at the end of the month of termination, this difference of a few days leads to vastly different outcomes. Using the October 2nd termination date, Brandon’s coverage will terminate as of October 31st, while using September 29th, his coverage will already have terminated as of September 30th. Whatever termination date BH uses, that will govern when Brandon’s benefits end.

The actual date of termination should be determined based on the employer’s policies and consistent with past practice. In the event of future litigation, the employer will likely have to demonstrate that it treated similarly situated employees in the same manner. For example, inconsistent treatment may fuel an argument that the employer treated the employee differently based on discriminatory intent. Ultimately, employers should consult with employment counsel prior to making employment and benefits termination decisions. 

Risks and Best Practices for Employers

These situations create headaches and risks on both the benefits and employment law sides. Here are several best practices that can help employers avoid these types of situations:

  • Confirm termination dates for various benefits and make sure your systems are in place. Medical, dental, and vision often end the end of the month, but other benefits, like life insurance, may end on the date of termination.
  • Be sure your employee handbook and benefits plan documents address the end of benefits in the same way.
  • Treat all similarly situated employees consistently.
  • Understand any job abandonment provisions contained in the employee handbook to properly administer these provisions.
  • Communicate the importance of following procedures and keeping accurate employment records to managers and other employees who may be responsible for maintaining those records.
  • Develop a defined process for employees returning from leaves of absence and timeline for terminating employees who fail to follow or engage in the specified process.
  • Consult your employment counsel to obtain legal advice specific to your situation.

If you have any questions, please contact your HUB Advisor. You can also view more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.