Mitigating Risks of Unlimited Sick Leave
Unlimited sick leave policies are gaining popularity as a great addition to an organization’s total rewards package. However, most employers tend to not implement the policies because of the risk factors. Yes, you might have that occasional employee who abuses the policy, but that can be managed. What I find most of my clients are worried about, is when an employee goes out on extended medical leave, causing them to become responsible for paying their full salary while they are out.
What if I told you that this is a risk that you don’t have to worry about?
First, I would like to address the fact that unlimited is not truly “unlimited”. For example, a current client of mine has capped their unlimited sick leave at five consecutive days per event. You might be thinking, “well how is that really unlimited then?” Great question; it is unlimited simply because they did not cap the number of events an employee can have during the year.
So what happens after your employee has been out for five consecutive work days, and is not released by their doctor to return to work? Wait for it… the answer is employer-paid short term and long term disability insurance!
Wait for it… the answer is employer-paid short-term and long-term disability insurance!
Reducing Liability for Wages with Unlimited Sick Leave
Short-term and long-term disability plans are the keys to reducing an employer’s liability for wages when offering an unlimited sick leave benefit. How, you ask?
Well, short-term and long-term disability plans are typically paid by the employer so everyone (in your benefit class) is eligible (and should be auto-enrolled). The specific enrollment dates (or effective dates) are flexible based on your company’s qualification period and policy.
A current client of mine has a seven day waiting period (keep in mind, the seven days include non-working days) associated with their short-term disability policy. This means that if an employee is out on sick leave past the waiting period, the employer is only responsible for the wages during the five consecutive working days. All sick leave after the initial waiting period is paid by the short-term disability carrier. Since this coverage is typically paid at 60% of an employee’s regular earnings, it is also a motivator for the employee to get back to work as soon as possible. Although you wish for a speedy recovery for all of your employees, you want to make sure you have a backup plan in place for those times when recovery takes longer than anticipated.
So what happens in those rare situations when an employee is out past the short-term disability coverage period?
This is when the long-term disability plan kicks in. Employers should ensure their disability plans are written so that long-term disability starts immediately after short-term disability ends.
Unlimited Sick Leave Benefits for Government Contractors
Did you know that if you are a Government Contractor, you can actually increase your compliance by implementing an unlimited sick leave policy? Sounds interesting, right!?
In January 2017, federal contractors must offer up to 56 hours of sick leave per year according to Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors. The awesome news is that it is possible to reduce your wage liability and risk because you will not have to make accrual adjustments or increase tracking to ensure you are compliant. Employers who offer unlimited sick leave will be ahead of the game!