March 6, 2017

COBRA: Court Finds Error in Small Employer Threshold (article)

Employers who sponsor group health plans and who employ 20 or more employees on 50% of its business day in the preceding year are required to offer COBRA continuation coverage to covered individuals who lose coverage due to certain qualifying events.  Certain group health plans are exempt from the COBRA law including small employer plans. For purposes of the small employer plan exception, a small employer is one who normally employed fewer than 20 common law employees on a typical business day in the calendar year.  It is important to note this determination is based on the number of employees employed, not the number of participants in the plan.  A part-time employee is counted as a fraction of a full-time employee, calculated as a ratio of the number of hours an individual works, over the number of hours considered to be a full-time employee.  For example, a 20-hour per week employee is considered one-half of an employee, if full-time is considered 40 hours per week


A recent court case emphasizes the importance of calculating the number of employees to meet the small employer exception.  In Virciglio v. Work Train Staffing LLC (2016 WL 7487725, 11th Cir. 2016),

an employee, who was covered under his employer’s group health plan, had his employment terminated with the resulting loss of coverage.  He was not provided COBRA information from his employer, and thus, failed to elect continuation coverage, and then sued the company for failure to provide him with COBRA information, along with other employment-related discriminatory complaints.  His company, a staffing firm, argued that it was exempt from COBRA under the small employer exception and thus, was not required to provide COBRA information.  However, the court determined that the staffing company collectively had far more than 20 employees and thus, failed to meet the small employer exception criteria.  Further, the court determined that even though the company’s staffing workers were outsourced to other job sites, they remained employees of the company. 


As a reminder, at the beginning of each calendar year, small employers should review their employee census for the prior calendar year.  If the employer employed 20 or more common law employees on at least 50 percent of the typical business days in the preceding calendar year, the employer would likely be subject to the COBRA law unless one of the other exceptions applies. 


The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.   

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