Many companies are familiar with federal COBRA which provides for continuing healthcare coverage for 18 months (can be more in some instances) for employees employed by companies with more than 20 employees.

Now, employers in Pennsylvania with 2-19 employees are covered under mini-COBRA, effective July 2009. Mini-COBRA, also known as Act 2 of 2009, is a new law in Pennsylvania that gives employees of small businesses who receive health insurance from their employers the right to purchase continuation health insurance after they leave employment. It also allows eligible employees and dependents to purchase health insurance for 9 months after their employment ends.

More information can be found on the Commonwealth of Pennsylvania’s Insurance Department’s website HERE as well as a Model Notice that mini-COBRA covered employers or insurance companies should use.

NEW JERSEY EMPLOYERS

For New Jersey employers, New Jersey has had a mini-COBRA in place. The premium assistance applies (see below). However, in New Jersey, employees terminated for cause are not eligible for benefits under mini-COBRA.

PREMIUM ASSISTANCE

According to recent headlines, COBRA enrollment has doubled after the government launched the stimulus program assisting insureds with premium payments.

Under this federal stimulus law (known as ARRA, The American Recovery and Reinvestment Act of 2009), eligible employees involuntarily terminated on or after July 10, 2009 and before January 1, 2010 receive premium assistance with for their health benefits under COBRA.

The federal stimulus law also applies to mini-COBRA for workers involuntarily terminated.

One difference between Federal and mini-COBRA is that employers covered by federal COBRA need to handle the financial arrangements. They then receive a tax credit for the 65% portion fronted for the premium. Pennsylvania and New Jersey employers covered by mini-COBRA do not have to front any of the premium. Their insurance company providing the health insurance for the employer will handle the financial arrangements. However, plan administrators, either the insurer or the employer, are responsible for collecting the payment for the employee’s share (35%) of the premium.

In an effort to cut costs, more and more employers have been considering alternatives to layoffs. As many employers continue to have these questions, the below features responses to frequently asked questions.

First, a word of caution. Before thinking about reducing hours or reducing pay, employers need to make sure their workforce is properly classified pursuant to the Fair Labor Standards Act (FLSA). In general, when employees meet the criteria established by the FLSA, employees are either exempt (exempt from the overtime requirements and are generally paid a salary) or non-exempt (covered by the overtime and minimum wage requirements and generally paid an hourly rate). All employers should check with their trusted advisor to make sure their employees are properly classified.

FOR NON-EXEMPT EMPLOYEES: Non-exempt employees need to be paid the minimum wage and only need to be paid for hours worked. As such, wage and hour laws do not preclude employers from reducing the number of hours a non-exempt employee is scheduled to work. When changes are made, good practices require communicating such changes to the employees. Another word of caution – employers who give employees furlough days need to make sure that the time the employee spends waiting for work is not considered on-call or waiting time because such time is compensable.

FOR EXEMPT EMPLOYEES: Making changes to hours and weeks worked for exempt employees needs to be considered carefully to avoid risk.

• Exempt employees must be paid every week and must receive at least $445.00 per week.

• Employers should not make partial week deductions for exempt employees.

• Employers may reduce the number of work weeks for exempt employees, but in weeks in which the employer does not compensate the employee, the employee cannot do any work. Even asking an employee to check in with the office or be available by telephone is not permitted.

• Deductions cannot be made from an exempt employee’s salary for absences resulting from the operating requirements of the business. This means, if work is not available, employers cannot make deductions from the exempt employee’s salary.

• However, employers can make future plans to reduce hours worked and when done in this prospective manner, employers can make deductions from exempt employees’ salaries. Remember, these deductions cannot be occasioned by day-to-day or week-to-week determinations. Salaries of exempt employees cannot fluctuate daily or weekly. The difference is long term business needs versus short term business needs.

• An exempt employee can volunteer to take time off of work due to lack of work, but it must be the employee’s decision and it must be completely voluntary.

• Note: Physicians, lawyers and outside salespersons are not subject to salary requirements. Therefore, deductions from their salary will not result in a loss of the exemption.