May 18, 2009

PAYMENTS FOR TIME NOT WORKED | Nonretirement Benefits

Employers normally pay employees for certain holidays. At a minimum, employees usually receive pay for the following:

  • New Year's Day
  • Memorial Day
  • The Fourth of July
  • Labor Day
  • Thanksgiving
  • Christmas

Most employees receive at least six and sometimes as many as 11 or 12 additional holidays, which may include the following:

  • Martin Luther King's Birthday
  • Washington's Birthday
  • Lincoln's Birthday
  • Presidents' Day
  • Good Friday
  • Columbus Day
  • The Friday after Thanksgiving
  • Veterans Day
  • Christmas Eve
  • New Year's Eve
  • The employee's birthday
  • Various state holidays

For some institutions, such as banks, holidays are prescribed by law. However, for most companies, management decides which holidays to provide, subject to collective bargaining if applicable.

When a scheduled holiday falls on a Saturday, employees who normally do not work on that day are given the preceding Friday off. When a holiday falls on Sunday, it is normally observed on Monday. Restaurants and retail establishments are increasingly open for business on holidays. When this occurs, employees who work are usually paid at least time and a half and sometimes as much as triple time.

Some companies, realizing that not all employees want to take the same holidays, try to satisfy these needs by adopting holiday plans that include a minimum number of scheduled holidays coupled with a specific number of "floating holidays" to be taken at an employee's discretion. Usually, there is no requirement that the days taken actually be holidays, so in effect they become additional vacation days in lieu of holidays.

Like vacation pay, holiday pay is taxed as regular income.

Personal Time Off with Pay
Because personal situations that require an employee to be away from work occasionally arise, many employers allow employees to take time off with pay for certain reasons, the more common of which are the following:

  • Reserve/National Guard duty. Laws sometimes require that employees be given time off for reserve or National Guard duty, but there is no stipulation that pay continue during this period. However, the majority of employers compensate their employees for the difference between their regular pay and any compensation received for the reserve or National Guard duty.
  • Jury duty. Most employers grant (and may be required to grant) time off for jury duty. Because employees are usually compensated for jury duty, some employers pay only the difference between this amount and an employee's regular pay. However, the amount paid for jury duty is small and often just barely covers an employee's extra expenses. Therefore, many employers continue regular compensation with no deduction.
  • A death in the family. Employers often allow up to five days off with pay for the death of family members. At a minimum, this usually includes the death of a parent, child, spouse, or other relative residing in the house-hold. Some employers allow a shorter period of time, such as a day or half a day, to attend funerals of other relatives and sometimes even persons other than relatives.
  • Sabbatical leaves. Sabbatical leaves are well established as employee benefits at educational institutions. Typically, faculty members are permitted an extended leave of a semester or a year after a specified period of service, such as seven years. During the sabbatical leave, the faculty member receives full or partial pay while performing no services for the employer. Meanwhile, the faculty member is often required to complete a research project or some similar activity as a condition of the sabbatical. Noneducational employers, particularly those having employees with professional degrees, sometimes provide similar benefits to professional employees to give them an opportunity to engage in research or study that is not directly job related.

Some less common reasons for which employers may allow time off with pay include the employee's getting married and serving as a witness in a court proceeding. Because still other personal reasons for needing time off may arise, employers may grant two or three days of personal leave that can be taken at an employee's discretion.

Personal Time Off Without Pay (Family Leave)
For many years, most industrialized countries have had legislation that enables employees to be away from work for extended periods without jeopardizing their jobs. The reasons for such leave vary among countries, as does the extent to which the employer must continue to provide pay and benefits to an employee on leave.

Over the last two decades, an increasing number of American employers have voluntarily begun to allow employees to take time off without pay. Reasons for such leave may include active military duty, extended vacations, honeymoons, education, the birth or adoption of a child, and the illness of a family member. Usually, such time off has been subject to the approval of the employer. Family leave is becoming more and more common as many states and the federal government adopt family-leave legislation.

State Laws
In recent years, the legislatures of almost every state have considered family-leave legislation, and more than half the states have enacted such legislation. As a general rule, these laws allow an employee to take an unpaid leave of absence for reasons such as the birth or adoption of a child and the illness of a family member. The length of leave allowed varies considerably among states, but it usually ranges from three to six months. When the family leave is completed, the employer is required to allow the employee to return to the same or a comparable job.

Almost all family-leave laws apply to public employers, and about half of the laws apply to private employers with more than a minimum number of employees, usually in the range of 25 to 100. In all states, employers are allowed to limit family leave to employees who have met certain eligibility requirements. While these requirements vary, the most common requirement is at least one year of full-time employment. At a minimum, most family-leave laws allow an employee to continue medical expense coverage at his or her own cost. Some laws require all employee benefits to be made available.

Federal Law
In 1993, the first federal family-leave legislation—the Family and Medical Leave Act—became effective. Unlike some federal legislation, it applies not only to private employers but also to nonprofit organizations and government entities, including Congress. The provisions of this legislation cover only a small percentage of the nation's employers but approximately two-thirds of all employees.

Despite concerns by employers that the act would increase costs and lower productivity, the actual effect seems to have been minimal, partly because many large employers already had leave policies similar to the act's provisions. A report issued in May 1996 by the Bipartisan Commission on Family and Medical Leave reported the following:

  • Approximately 90 percent of employers reported that there was no noticeable effect on productivity, profitability, and growth as a result of the act.
  • Only about 16 percent of the persons eligible for leave actually took it. The vast majority of persons who did not take leave for which they were eligible said they could not afford the resulting wage loss.
  • The median length of leave time is 10 days.
  • The group most likely to take leave is employees between the ages of 25 and 34.

The act applies only to employers with more than 50 employees within a 75-mile radius. To comply with the 50-employee requirement, an employer needs only to have that many employees during each workday for a period of 20 or more calendar weeks during the current or preceding calendar year. Part-time employees and employees on unpaid leaves of absence are included in the calculation. The 50-employee requirement is based on "joint employment," which means that two or more related companies can be treated as a single employer on the basis of factors such as common management, interrelations between operations, centralized control of labor relations, and the degree of common ownership or management. The 75-mile radius is based on the shortest route on public roads or public transportation.

With some exceptions, a worker must be allowed to take up to 12 weeks of unpaid leave in any 12-month period for the birth or adoption of a child; to care for a child, spouse, or parent with a serious health condition; or for the worker's own serious health condition that makes it impossible to perform a job. An employer may use any one of the following four methods to determine the 12-month period to which the family leave applies:

  • The calendar year
  • Any fixed 12-month period
  • The 12-month period beginning with any employee's first day of leave
  • A rolling 12-month period measured backward from the date leave is used

With one exception, the method chosen must apply uniformly to all employees. The exception occurs if a multistate employer operates in one or more states that have family-leave legislation that mandates a method different from the one chosen. In that case, the employer is permitted to comply with the state's requirement for employees located in that state but must use the chosen method for employees in other states.

A serious health condition is defined as one that requires continuing treatment from a health care provider. The regulations implementing the act generally define this as meaning that the condition will require absence from work, school, or regular daily activities for more than three calendar days. However, the regulations also include treatment for pregnancy and certain chronic conditions, such as diabetes and asthma, as being serious health conditions even though treatment at any time may last less than three days. In addition, the definition includes health problems that are not ordinarily incapacitating on a day-to-day basis, but for which a person must undergo a series of multiple treatments. Examples in the regulations include chemotherapy or radiation for cancer, kidney dialysis, and physical therapy for severe arthritis. The regulations specifically exclude the following from the definition of a serious health condition: common colds, flu, upset stomach, and routine dental problems. Stress is also excluded, but mental illness arising from stress can qualify.

The act applies to both full-time and part-time employees. The latter must be allowed to take leave on a basis that is proportional to that given to full-time employees. However, leave can be denied to anyone who has not worked for the employer for at least one year and worked at least 1,250 hours during that period.

In most cases, the rules allow employees to take leave intermittently or by working a reduced week, but only with the employer's approval. The exception is that leave because of a person's or family member's serious health condition may be taken whenever medically necessary.

An employer is allowed to substitute an employee's accrued paid leave for any part of the 12-week period of family leave. In addition, an employer can deny leave to a salaried employee within the highest-paid 10 percent of its work force if the leave would create a substantial and grievous injury to the organization's operations.

An employee is required to provide 30 days' notice for foreseeable leaves for birth, adoption, or planned medical treatment. The employer can require that an employee provide a doctor's certification of a serious illness. An employer can also require a second opinion but must pay for the cost.

During the period of leave, an employer has no obligation to continue an employee's pay or most benefits, and the employee is ineligible for unemployment compensation. However, an employer must continue to provide medical and dental benefits during the leave as if the worker were still employed. The employee must continue to pay any required plan contributions and must be given a 30-day grace period for such payments. The employer is also required to send the employee a notice no later than 15 days before the grace period expires, stating that coverage will be terminated if the premium is not paid. The employer is allowed to recover the cost of premiums paid by the employer during the leave if the employee does not return to work for reasons other than (1) the continuance, recurrence, or onset of a health condition (as previously defined) affecting the employee or the employee's spouse, parent, or child, or (2) other cirucumstances beyond the employee's control.

Upon return from leave, an employee must be given his or her old job or an equivalent job. The employee must also be allowed to regain any benefits that were enjoyed prior to the leave without meeting any requalification requirements. With respect to retirement plans, any period of leave must be treated as continued service for purposes of vesting and eligibility to participate.

Employers must comply with the new federal law as well as with any applicable state laws. Because most existing state laws have at least one provision that is broader than the federal legislation, an employer must have a complete understanding of both laws.

An employer should have a clear, written family-leave policy that is consistently enforced. In establishing this policy, the employer should address such issues as

  • Eligibility requirements
  • Employee certification of need for leave
  • Employee rights upon returning from leave
  • Employer rights if employee terminates at end of leave

The federal law requires that an employer post a notice explaining the Family and Medical Leave Act, a sample of which is contained in material from the Labor Department, which administers the law. In addition, if an employer does not provide employees with guidance about their rights and obligations under the act in employee manuals or handouts, this information must be provided to an employee at the time he or she requests it.

Supplemental Unemployment Benefit Plans
Collective-bargaining agreements may require that employers contribute to a supplemental unemployment benefit (SUB) plan that is designed to supplement state unemployment insurance benefits for workers who are unemployed. These plans rarely exist for nonunion employees. Benefits are often payable for at least a year and with regular unemployment benefits may be as high as 95 percent of what the worker was earning while employed.

SUB plans typically require that employers contribute to a SUB fund on the basis of the compensation of currently active employees, and employee contributions may also be required. The fund is usually maintained by trustees selected by the collective-bargaining agent, and it is frequently a common fund maintained for several employers. Employer contributions to the fund are income tax deductible, and if the fund is properly designed, earnings on fund assets may also be exempt from income taxation. Benefit payments to employees are fully taxable.


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