Under COBRA (Consolidated Omnibus Budget Reconciliation Act), the federal government requires employers to offer temporary continuation of health benefits to certain employees who suddenly lose their jobs.
The law says that employers who fit a certain profile must offer COBRA to employees who undergo a “qualifying event.” This event is typically the termination of employment, whether voluntary or involuntary. It could also be a reduction in work hours, resulting in the loss of the employee’s health benefits. However, if an employee loses their job due to some type of gross conduct, the employer may not have to provide COBRA benefits.
Unfortunately, like many federal employment laws, COBRA can be confusing to interpret and understand. It can be quite a challenge to figure out whether or not your company is required to comply with this law. However, it’s critical that you first determine if COBRA applies to your business. Otherwise, you may end up facing expensive excise taxes, government investigations, fines or even litigation brought forth by former employees.
Here are the factors that determine if an employer is subject to COBRA:
According to the Department of Labor, employers with 20 or more employees are generally subject to COBRA. However, the law does not cover the District of Columbia, federal employees, particular church-related programs and some companies with less than 20 employees. If you fall into this group, you are required to give detailed notice to employees about their COBRA rights.
Small employer exception
Although many smaller businesses do not have to comply with COBRA, there are some exceptions. Under the law, if an employer “normally” employed 20 or more employees in the previous calendar year, they must offer employees COBRA benefits.
In other words, if your business employed more than 20 employees on half or more of the company’s typical business days the previous year, you are required to comply with COBRA. You have the option to figure the number of people you employed either on a daily basis or a pay-period basis. You must count all employees, regardless of whether they were enrolled in the group health plan.
Under COBRA, both full-time and part-time employees count toward the total number. However, a part-time employee does not count as a “whole” employee. Instead, they count as a fraction of an employee depending on how many hours they work as compared to a full-time employee.
For example, let’s assume your company requires that an employee must work 30 hours per week to be considered a full-time worker. In that case, an individual who works 15 hours a week would be considered half of an employee, someone who works 10 hours a week would count as a third of an employee, and so on. However, no business can require that employees work more than 40 hours a week to be considered full-time.
Self-employed workers, independent contractors and corporate directors do not count, even if they receive health benefits from the company. But here’s where it gets confusing: even though these workers do not count as an employee for the purpose of small business exceptions, they may still be eligible to receive COBRA benefits due to a “qualifying event.”
In a multi-employer health plan, each participating employer must determine independently whether or not they are subject to COBRA laws. For example, if a multi-employer plan that is not required to follow COBRA suddenly adds an employer that does fall under the law, the entire plan is then subject to COBRA.
Additionally, business mergers and spin-offs can impact COBRA requirements. If you are uncertain about whether your company is subject to COBRA, you should consider meeting with an attorney.