3511 / What are the payment options that must be made available to employees on FMLA leave?

Whatever payment options are available to employees on non-FMLA leave must also be made available to employees on FMLA leave.¹ Employers must continue to contribute the same share of the premium cost that they were paying prior to the FMLA leave. Employees who choose to continue health coverage during an FMLA leave must pay the same portion of the cost of such coverage that they paid while actively at work.² Employers may choose to waive this requirement, provided that they do so on a nondiscriminatory basis.

A cafeteria plan may generally offer employees on unpaid FMLA leave up to three options for paying for their health coverage under a cafeteria plan or health FSA.³ These rules do not apply where paid leave is substituted for unpaid FMLA leave, in which case the employer must offer the payment method normally available during other types of paid leave.⁴

Any of the three payment options discussed below may generally be made on a pre-tax salary reduction basis to the extent that the employee on FMLA leave has any taxable compensation (including the cash value of unused sick days or vacation days). A restriction applies when an employee’s FMLA leave spans two plan years. In such a case, the plan may not operate in a manner that would allow employees on FMLA leave to defer compensation from one plan year to a subsequent plan year.⁵ Any of the three payment options may also be made on an after-tax basis.