Who Knew? Is Premium Recovery Possible with an FMLA Leave?

I don’t claim to be an FMLA expert (Family and Medical Leave Act), but since COBRA and FMLA often collide in a confusing way, I’ve had to become familiar with FMLA laws because I’m often asked questions by COBRA clients regarding FMLA leaves. This week an FMLA question arose and I was surprised by the answer. “Can an employer collect insurance premiums paid during a FMLA leave if the employee does not return from leave or gives notice before the FMLA leave is finished?” My first thought was no, but, upon further research, I learned the answer can be yes with certain exceptions (there are always exceptions!).

The Department of Labor FMLA regulations provide the following guidance regarding recovery of the premiums if the employee does not return from FMLA leave either by 1) giving advance notice or 2) simply by not returning to work after the end of the leave:

When an employee fails to return to work, any health and non-health benefit premiums which the employer paid on behalf of the non-returning employee constitutes a debt owed to the employer. The existence of this debit, caused by the employee’s failure to return to work, does not alter the employer’s responsibilities for health benefit coverage and, under a self-insurance plan, payment of claims incurred during the period of FMLA leave. To the extend recovery is allowed, the employer may recover the costs through deduction from any sums due the employer (e.g., unpaid wages, vacation pay, profit sharing, etc.), provided such deductions do not otherwise violate applicable Federal or State wage payment or other laws. Alternatively, the employer may initiate legal action against the employee to recover such costs.


Now, the exceptions to the rule. The employer may not recover its share of health plan premiums when the employee’s return to work is prevented because:

  • The continuation, recurrence, or onset of a serious health condition of the employee or an immediate family member, or a serious injury or illness of a covered service member that would otherwise entitle the employee to leave employment, or
  • Other circumstances beyond the employee’s control. In this case, the burden of proof lays with the employer to prove that the circumstance was not out of the employee’s control.

Let’s look at two examples:

Example 1:  Sally Jones goes out on FMLA leave and uses the maximum 12 weeks. ABC Company pays 75% of her medical, dental and vision premium each of the three months of leave and Sally sends a check for her 25% premium responsibility. At the end of 12 weeks, Sally notifies ABC Company she accepted a position with a different employer and would not be returning to work. Under DOL FMLA regulations, the 75% premium ABC Company paid towards her medical, dental and vision coverage represents a debt that Sally owes her former employer. ABC Company may offset this debit against other amounts it owes Sally, or it may file a suit against Sally to recover the amount of the debt.

Example 2:  Assume the facts of example 1 are the same except that Sally doesn’t return to work because her spouse’s employer has unexpectedly transferred him to a position in another city in another state.  Due to “circumstances beyond the employee’s control,” Sally cannot return to work and ABC Company does not have the right to recover the premiums they paid towards Sally’s medical, dental and vision coverage while on FMLA leave.

Another twist to this guidance is if an employee returns to work for at least 30 calendar days after leave ends, that employee is considered to have “returned” to work for the purposes of the FMLA. In addition, an employee who transfers directly from taking FMLA leave to retirement or retires during the first 30 days after returning to work is considered to have returned to work. The employer would not be able to seek recovery of premiums in either of these cases.

The Employer’s Guide to the Family and Medical Leave Act is very helpful for figuring out how to administer an FMLA leave.  The section addressing the topic of this article is on pages 63 and 64 of the Guide.

The crux of whether the employer can recover premiums hinges on this question: when does the obligation to maintain health benefit coverage end? If the answer is any of the following, an employer can seek to recover premiums.

  1. The employee chooses to drop coverage during the leave
  2. The employee fails to pay his or her share (if any) of the premium for coverage by the applicable deadline (including the required grace period)
  3. The employee does not return to work at the end of the leave
  4. The employee informs the employer that he or she does not intend to return from the leave (get the termination request in writing if you’re going to terminate coverage before the end of 12-weeks!)

And, to end this article on solid COBRA ground for me, a COBRA notice must be offered when the FMLA leave ends if the employee does not return to work. The qualifying event date might be the last day of the 12-week leave, when the employee elects to drop coverage during the leave, or when the employee gives notice during the leave. The employer terminates coverage at the end of that month and the ex-employee is responsible for paying for COBRA coverage the first of the month following the qualifying event.