Layoff vs. Furlough: How Each Affects Benefit Retention and COBRA Eligibility

Layoff vs. Furlough: How Each Affects Benefit Retention and COBRA Eligibility

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During the COVID-19 pandemic crisis, many US companies are furloughing or laying off employees. Continuation of health insurance benefits during layoff vs. furlough is a hot topic. In this article, we’ll also be discussing COBRA, which refers to the Consolidated Omnibus Budget Reconciliation Act law passed in 1985. This law allows workers to continue on the same health insurance plan after separating from their employers.

Comparing COBRA and Insurance Benefits as Impacted by Layoff vs. Furlough

Does Furlough Trigger COBRA?

A furlough is a period dictated by an employer when an employee is not allowed to work, specifically so as to reduce company expenses. During this time, workers are on unpaid leaves of absence while remaining employed at that company. Many employers keep paid insurance benefits intact for employees who have been furloughed.

A company’s furloughed workers are ready and available to begin working immediately upon being notified that the furlough has ended. Workers can be up-and-running without encountering the delay of onboarding to the company. For short durations of furlough—less than a month, for example—it makes sense administratively to keep insurance active.

Employees on full-time furlough do not receive a paycheck, while those who are only partially furloughed would still be working and receiving pay for that time. In terms of returning to work, there is a significant difference in layoff vs. furlough. While initially furloughs do have anticipated end dates, they may either be extended or ultimately turn into layoffs.

Does Layoff Trigger COBRA?

A laid-off worker is no longer considered an employee. A layoff is deemed to be full separation from employment with a company, specifically due to business needs, such as a reduction in available work or budgetary loss. When an employee is laid off, it is no fault of their own—a layoff is not based on anything the employee has done in terms of performance or behavior at work.

In theory, a layoff may be short-term, meaning the employer intends to rehire the employee when work increases and funds are available for paychecks. This is typical in seasonal jobs, where the typical cycle of work calls for labor during only half of the year. To some extent, an employee can plan to be re-employed at that company annually. But there is no guarantee of re-employment for an employee who has been laid off.

How Are Insurance Benefits Affected by Furlough or Layoff?

The monthly premium cost for COBRA coverage comes out of the former employee’s pocket. They have a 60-day window of opportunity for enrollment in COBRA. Depending on the state in which the employee lives, a furlough might trigger eligibility for COBRA enrollment, whereas a layoff always triggers COBRA. In some personal circumstances, the former employee may qualify for 18 months, 29 months, or 36 months. The duration for which the COBRA may be active differs from state to state.

We’re Here to Help

At benefEx, we’re here to help you through these trying times. Reach out to us to discuss benefits continuation for your employees. We’re here to discuss options and help you make the best decision for your business situation—for today and in the future!