Outsourcing FMLA administration

Employers and individual Americans are increasingly focused on the implementation of health care reform, which officially kicks off in January, and many are understandably anxious about how their medical care will change under the new law. 

While President Obama has delayed the “employer mandate” portion of the law requiring that employers provide and contribute to the cost of health insurance for their employees, the business community remains particularly concerned about the potential impact of health care reform on the bottom line. 

This isn’t the first time in recent history that companies have been shaken by sweeping changes brought on by healthcare-related legislation.

This year marks the 20th anniversary of the groundbreaking Family Medical Leave Act, a law that ensured employees could take unpaid leave for specified family and medical reasons with continuation of group health insurance coverage. As with health care reform, at the time the law was passed, the business community was anxious about the law’s impact. In fact, the law was downright unpopular with some, with many fearing a loss of productivity and jobs.

But over time, that anxiety has waned and most individuals and companies now consider the FMLA to be a highly successful benefit for U.S. workers.

At least part of the reason for the law’s success is the outsourcing of FMLA functions to ensure that the law is properly implemented. Outsourcing is a growing trend among HR departments with more than 20 percent of employers using outside firms to administer their plans and another 34 percent who are “very to somewhat” interested in outsourcing their FMLA programs, according to a recent study by LIMRA research consultants. 

What’s the reason for the growing interest in outsourcing? A separate report by Aon Hewitt provides the answer: “The complexity of the FMLA still presents a significant challenge for employers,” the report concludes. 

More than half of the employers Aon Hewitt surveyed felt they could improve the administration of FMLA leaves of absence. Employers also indicated that they often have policies that vary from what the law specifically addresses or requires, creating further administrative challenges to conquer. 

“For instance, nearly four out of 10 incorporate more family relationships than what the FMLA provides (e.g., same-sex partners) and more than 70 percent are unable to track historical work hours for their exempt populations.”

Lacking the skill and guidance of the seasoned professional, companies that self-administer the Family Medical Leave can find themselves in a terrible bind. And the stakes couldn’t be higher, because failure to comply with FMLA rules may lead to costly litigation or regulatory penalties and administrative proceedings.

In addition to reducing the threat of costly litigation if administered improperly as well as the opportunity to save money by mitigating short-term disability claims, there are at least five compelling reasons to outsource administration of the plan:

  1. Employers who violate FMLA provisions may be forced to pay fines, and employees who pursue private action may be awarded damages such as lost wages, employment benefits and other monetary losses.
  2. Employers who administer the plan improperly may be ordered to reinstate terminated employees. And employers who violate FMLA provisions face a longer statute of limitations for claims under the FMLA.
  3. The federal law significantly increases the workload of HR departments.
  4. It is difficult for swamped HR departments to stay current on evolving federal regulations and to track intermittent employee leave.
  5. Because they don’t understand the nuances of the federal law, HR departments might inconsistently grant leave in an effort to be cautious. Over time, this can cost the company quite a lot in lost productivity and resources.

FMLA has been used by employees more than 100 million times in the last two decades. It is a collection of do’s and don’ts that many HR departments find difficult to track given their additional commitments – and when healthcare reform kicks in, those commitments will surge. 

In a recent commentary in Politico, President Bill Clinton wrote that, “To this day, I receive more thanks from citizens for the FMLA than any other single piece of legislation I signed into law.” 

With so many Americans accessing the benefits provided under this popular law and many more expected to do so in years to come, employers can’t afford missteps.

About the Author
Kevin Daft

Kevin Daft

Kevin Daft is product management director at WellPoint Inc. and has been responsible for WellPoint’s integrated short-term disability/FMLA administration product since 2006. 


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