Pay In Lieu of Benefits--Legality/Pitfalls?

Quizmaster · August 2001

I work for a small company, and we are duscussing an optional Pay in Lieu of Benefits program. Essentially, in exchange for increased pay, an employee may elect to refuse the following benefits: health insurance, vacation time/pay, holiday time/pay, sick time/pay, funeral leave/pay, and other paid time off. Other benefits (e.g., FMLA, WC, etc.) would not be affected. Each employee may choose to paticpate or not participate. Interested employees may elect to participate only upon hire or on their yearly anniversary date. Please comment on any legal concerns to consider or other pitfalls involved with such a program. Have any readers tried this?

Gar · August 2001

Sounds like a cool idea and appears to be a money saver. I'm no lawyer but it sounds like you've covered all the bases. To play it safe, get the views of a labor/employment attorney and talk to your state's department of labor.

Down_the_Middle · August 2001

Understanding that we already have a section 125 plan in place....we've moved to offering fulltime w/o benefits for many of our hard-to-recruit positions. It has been successful altho the majority of interested participants are those with less experience who are willing to forego the health & welfare benefits....and opt for a higher hourly wage. We're still in a trial-period and will then assess whether to do this organizationally or not.

System · August 2001

[font size="1" color="#FF0000"]LAST EDITED ON 08-07-01 AT 11:57AM (CST)[/font][p]The company where I work does some of this. Employees can refuse health insurance in return for a small monthly payment. It's good for employees who are covered under their spouse's insurance. And, on our anniversary date, we can cash in excess leave (but we have to keep 40 hours).

I wouldn't want to have employees with no paid leave whatsoever. That would encourage employees to come to work when they're sick and contagious. They'd do poor work and might make many co-workers sick.

You might want to consult a lawyer before you change any benefits plan. If you don't have one, we have lawyers in every state who are affiliated with HRhero.com. You can find them at
[url]http://www.hrhero.com/findanattorney.shtml[/url]

James Sokolowski
Senior Editor
M. Lee Smith Publishers

Blanche · August 2001

When I recently asked a Benefits Consultant to explain the concept of requiring an employee to provide proof of alternative health insurance before an employer accepts the employee's waiver of coverage under the employer group plan (which many companys now do), I was surprised by his answer. He has seen cases where an employee filed suit against an employer for medical expenses that would have been covered by the employer plan - but the employee voluntarily declined coverage. While I think this is an abboration, it is something to consider if you are finacially incenting your employees to waive coverage. Notwithstanding this new strand of litigation, I think it's a great idea!

Margaret Morford · August 2001

Usually those suits arise from employees who argue that they were never offered coverage when eligible or they enrolled and the company never processed (or lost) the paperwork or they were never told they could pick up coverage during open enrollment. This is why most companies require the waiver to be in writing to eliminate these types of lawsuits. Paying people who don't accept coverage is done by lots of companies.

Margaret Morford
theHRedge

B Pope · August 2001

>I have looked into doing this where I work to aide our recruitment efforts. However, because we are self-insured we run a large risk of having too many employees opt for this benefit and leaving a smaller number of employees in the health plan. Along this line, if most of those employees opting out of the benefits are healthier this leaves employees who will use the health insurance more which will drive your experience up. Although I paint a somewhat dark picture, I really would like to attempt to implement this type of program...I would just like a crystal ball to tell me if it would work or end up costing the company a lot more. I'd be interested in hearing from anyone who has experience or knowledge in this area. Thanks for the timely topic!

Margaret Morford · August 2001

My experience has been that not as many people opt out as you think. One possible suggestion is to require that every employee have insurance coverage. They may only waive if they can prove that they have coverage elsewhere (usually at their spouse's place of employment). This keeps the young employees (who believe they will live forever) from not taking any insurance and simplifies your waiver process. Everyone is automatically enrolled in single coverage unless they elect something else or they provide proof of insurance elsewhere and sign a waiver.

Hope that helps.

Margaret Morford
theHRedge

Pay In Lieu of Benefits--Legality/Pitfalls?

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