What to Know Before Terminating an Employee with Benefits

Terminating an employee is always difficult. Both employees and employers must do their due diligence to avoid issues in the future. Employers typically think about issues such as showing due cause, and employee benefits aren’t at the top of the list of concerns. But benefits can often come back to haunt you after employees leave, as they can sue their former employers if the proper procedures weren’t followed. 

Coverage Period

It’s important to factor benefits coverage into the severance package. This outlines the employee’s notice period (time period after termination that they remain eligible for benefits) which is something both employees, and employers, may not realize.

Employee benefits coverage must be extended for the same duration as a termination package. It’s a common misconception that notice periods only need to meet statutory minimums to satisfy an employer’s obligations, which equals roughly one week of notice per year of employment.

Notify your insurer in advance of a termination, so they can approve the continuation of benefits.

Common-law Notice

The minimum legal requirement of one week for every year of employment is often overridden by common-law notice. This supplements statutory minimums and is dependent on many factors including employee position, age, and length of service. Violation of notice periods often results in an employer becoming liable for damages during termination, usually due to canceling an employee’s coverage too soon. Notice periods are also frequently determined by court decisions in similar cases.

The Waiver

Having employees sign a waiver as part of the departure process will help prevent future liabilities for employers, regardless of whether an employee is terminated or has quit. The waiver will ensure that the employee is aware of their right to convert their employee benefits coverage to an individual policy. Many employees don’t realize they have a right to convert to individual life, health, and dental coverage before their previous coverage ends. If this agreement occurs within 31 days of leaving the company, no medical underwriting is required.

Describing Benefits Packages  

Besides a thorough waiver, employers can take further steps, particularly during the hiring process, to ensure a smooth termination. It is crucial to accurately describe the employee benefits in the initial benefit package that’s given to new hires. A single error in your methods may become a tragic issue.

If discrepancies arise between the package literature and what insurers list, employers can find themselves paying for the difference, and this amount often can be more than the cost of the original plan. Employers are legally required to provide an outline of the benefits program to each employee and, when any changes are made, each employee should be given an updated copy. Employers can also be held liable for not providing employees with clear instructions about the benefit packages.

About Moody Insurance Worldwide

Moody Insurance Worldwide, a division of Moody & Associates that was founded in 1914, is a leading provider of risk management programs and insurance coverage to individuals and businesses across the East Coast. We write all sizes of businesses, with technical expertise in many key industry areas, and provide personal insurance programs for estates and high net worth individuals. Our licensed, experienced commercial account managers can work with you to determine the coverage that you need at a competitive rate. Contact us today at (855) 868-0170 to learn more about what we can do for you.