When it comes to military benefits, every branch of military service and its reserve counterparts, as well as National Guard duty, are covered under the Uniformed Services Employment and Reemployment Rights Act (USERRA). Unlike other employment laws, USERRA has no minimum number of employees required for coverage. USERRA includes joint employers, and, in the case of mergers, it requires the merging company or acquiescing company to honor the employment rights in the case of a military member employed with the previous organization. Covered employees do not include independent contractors.

USERRA’s definition of service in the uniformed services covers all categories of military training and service, including duty performed on a voluntary or involuntary basis, whether in time of peace or war. Some examples of covered service include any active duty, active or inactive duty for training, National Guard duty under federal direction (but not under state direction), funeral honor duty and any absence necessary for fitness-for-duty examinations for such service.

Employers are required to post a notice of USERRA rights for military employment and re-employment in the workplace.

The following are the steps for employers to take before an employee’s departure for military leave.

 

STEP 1: DETERMINE IF THE TIME OFF REQUESTED FALLS UNDER USERRA AS A COVERED MILITARY LEAVE

USERRA applies to all employers, regardless of size, and job candidates and to all regular employees, regardless of position, length of service, or full- or part-time status.

USERRA’s definition of “service in the uniformed services” covers all categories of military training and service, including duty performed on a voluntary or involuntary basis, in time of peace or war. Although most often understood as applying to Guard and Reserve military personnel, USERRA also applies to persons serving in the active components of the armed forces and the National Disaster Medical System (NDMS).

USERRA also protects full-time employment of reservists for the Federal Emergency Management Agency (FEMA) when they are deployed to disasters and emergencies on behalf of FEMA.

Employees are expected to provide the employer with as much advance notice as possible of the need for military-related leave.

Employers are permitted to request documentation for military absences of 31 days or more upon an employee’s return from leave.

Employers may not require documentation before military leave. See Documentation Upon Return.

 

STEP 2: REVIEW THE EMPLOYEE’S HEALTH BENEFIT COVERAGE

If the employee is currently covered under the employer health insurance plan, the organization must make arrangements for continuing the coverage. Employers are required to continue the health benefits as follows:

  • Absences of 31 or more days. The employee may elect to continue coverage for up to 24 months or for the period of military service (including the time period allowed to reapply for employment), whichever is shorter. As with COBRA, the employee may be required to contribute up to 102 percent of the full premium. Upon reinstatement, the employee must be reinstated immediately into the health plan without any waiting periods or pre-existing condition exclusions.
  • Absences of less than 31 days. The employee is entitled to coverage under the health benefits plan as if he or she were employed continuously. The employee continues to pay his or her regular premium.

Regarding medical flexible spending accounts, the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act) allows military reservists who are called to active duty to receive distributions from unused funds in their health care flexible spending accounts (FSAs) without penalty. The law also allows the reservists not to forfeit the money under the “use it or lose it” rules that generally apply to cafeteria benefits plans.

 

STEP 3: DETERMINE WHAT COMPENSATION THE EMPLOYEE MAY BE ENTITLED TO DURING LEAVE

While generally considered unpaid leave, there are some circumstances in which USERRA does require employers to pay their employees during a military-related absence. Employers must consider exempt salary basis rules under the Fair Labor Standards Act (FLSA) for exempt employees missing partial workweeks due to military service. In other words, there is no requirement under USERRA to provide pay for military leave for nonexempt employees. Also, there is no requirement under USERRA or the FLSA for an employer to pay exempt employees on workweeks when the employee performs no work for the employer the entire workweek. The concern is when an exempt employee takes military leave for a partial workweek (including when the beginning or end of military leave falls in the middle of a workweek). According to the FLSA, deductions from salaries for a partial week due to military leave are not permissible because they violate the salary basis test for exempt employees. However, an employer may offset any amounts received by an employee occasioned by temporary military leave against the salary for a particular week.

In addition, courts have ruled that USERRA requires employers to pay employees for military leave if the leave closely resembles other types of leave for which employees are paid. However, there is little clarity on what other types of leave are comparable to a military related absence. This topic is one which employers should keep a close eye on. Seek legal counsel as needed. See When Does Military Leave Have to Be Paid?

Supplemental or differential income

Although they are not required to do so, employers may provide supplemental or differential income. Differential wage payments made to an individual on active duty for more than 30 days are subject to income tax withholding, but not to Social Security and Medicare (FICA) or unemployment tax (FUTA). Employers may want to consider limiting the duration of the supplemental pay considering that some employees may volunteer or be called up to active military duty for several months or years.

STEP 4: REVIEW ADDITIONAL EMPLOYEE BENEFITS

Paid time off, vacation and sick leave

Employers may allow, but may not require, employees to use their paid-time-off (PTO) or vacation benefits for military-related absences. Regarding paid-leave accruals, USERRA requires that if an employer typically allows employees on leave of absence to accrue PTO, then employees on military leave are also entitled to accrue PTO.

An employee is not entitled to use sick leave that accumulated during the period of employment unless the employer allows other employees to use sick leave for any reasons or allows similarly situated employees on leaves of absence to use accrued sick leave for non-illness or non-injury reasons.

Pension contributions

Employees are entitled to all accrued pension benefits they would have received had they continued to be employed. This requirement applies to defined benefit pensions, defined contribution plans and profit sharing plans, as well as to single-employer and multiemployer plans. The employer is not required to continue to make contributions to the employee’s 401(k) plan while the employee is deployed on military service. Although, no later than 90 days after the date of re-employment, the employer must make up any contributions attributable to the employee’s period of service “unless it is impossible or unreasonable to do so, and then the employer must make the contributions as soon as practicable.”

Likewise, employees can make up their 401(k) plan contributions over a period of time equal to three times their periods of service or five years, whichever ends first. The employer is obligated to make matching contributions based on these catch-up contributions. Also, an employee on active duty may designate an individual, such as a spouse, with power of attorney to authorize changes in investment allocations, participant loans and hardship withdrawals to the 401(k) or other defined contribution plan.

The vesting of employment rights occurs on re-employment. This means that if the employee does not seek to be re-employed by the employer, the employer is not responsible for those obligations.

It may be helpful to summarize how the employee’s benefits and compensation will be handled during his or her absence in a letter before the employee departs.

The following are the steps to take when the employee returns from military leave.

STEP 5: DETERMINE IF THE EMPLOYEE IS ENTITLED TO RE-EMPLOYMENT RIGHTS

To be entitled to reinstatement, the following conditions must have been met:

  • The employee gave the employer notice of the need for military leave.
  • The period of military service did not exceed five years. (Note: Some types of duty do not count against this five-year limit. Employees with disabilities have two years after their return dates—for purposes of recuperation and convalescence—to seek reemployment.)
  • The employee was released under honorable conditions.
  • The employee returned and applied for re-employment within the following time restrictions:
    • Leaves of less than 31 days. The employee must report to work on the first regularly scheduled work period following the completion of military service; no application is required.
    • Leaves of more than 31 days but less than 180 days. The employee must apply for reinstatement within 14 days after completion of military service.
    • Leaves of more than 180 days. The employee must apply for reinstatement no more than 90 days after completion of military service.

 

STEP 6: DETERMINE THE POSITION INTO WHICH THE RETURNING EMPLOYEE IS TO BE REINSTATED

When the employee returns from military service, he or she will be entitled to return to the position the employee would have attained if he or she had not been called to serve. This requirement is known as the “escalator principle.” The principle means that if the employee would have been promoted except for this leave of absence and if the employee is qualified to take the position now or can become qualified with reasonable employer efforts, then the employer must consider the employee for the promotion. If the employee is not or cannot become qualified, the employer must reinstate the employee to the job the employee held before the leave of absence or in a position of equivalent seniority, pay and status. In limited situations, if the employer’s circumstances make reinstatement impossible—for example, in light of decreased business or impending layoffs—the employer’s obligation to reinstate the employee does not apply. Employers should consult with an attorney before denying re-employment to an employee returning from military service. See Reemployment Rights and Benefits.

 

STEP 7: DETERMINE THE RETURNING EMPLOYEE’S RETURNING RATE OF PAY

The rate of pay for returning employees includes any nondiscretionary or discretionary compensation, including step increases, periodic increases or merit increases that would have occurred “with reasonable certainty” had the employee not been away on military service as part of the escalator principle.

In other words, if an employee in the same position received a merit-pay increase based on performance, the returning employee would also be entitled to such an increase. The U.S. Department of Labor (DOL) has said that to determine how to restore the employee’s compensation, the employer can look to the employee’s own past performance, the performance of other employees and other factors that apply to the history of employees in the same or similar positions. Along the same lines, if an employee in the same or comparable position would have received a pay increase based on increased skills, the DOL has decided that while the returning employee is taking a skills test or being trained or qualified to take the skills test, the higher rate of pay must be paid, and the employee must have time to prepare for the test.

Final note: Employees who are returning from a military leave of more than 31 days but less than 180 days cannot be terminated without cause for six months following their reinstatement. Employees returning from a military leave of more than 180 days cannot be terminated without cause for one year following their reinstatement. Employers should design and implement well-worded military leave-of-absence policies that speak to the employee’s obligations and the requirements for reinstatement upon his or her return from military service.

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