As a result of the employment relationship, employees are entitled to certain benefits as a matter of law, such as retirement and disability compensation. In addition, once an employer offers a pension or health insurance, federal law requires the employer to provide the benefits offered, without interference.
Federal and state law do not require employers to pay employees for time away from work, such as vacation, holiday or sick time off. When employers offer paid time off from work, state law typically answers questions of employee entitlement to paid time off benefits. Similarly, certain compensation benefits, such as incentive plans and stock option plans, are primarily creatures of state contract law and depend on what the employer chooses or agrees to offer. Incentive and stock option plans may, however, have serious federal tax consequences.
Statutory benefits, meaning benefits required by law, include:
- retirement and disability benefits, like social security;
- unemployment compensation benefits; and
- workers compensation benefits.
Employers are not required to provide retirement and disability benefits. However, federal law requires private employers, and state law requires public employers, to collect, match and remit a certain percentage an employee's payroll to the federal or state treasury to fund the retirement and disability benefits.
Welfare Benefit Plans- ERISA
Employers may, but do not have to, provide pension, health insurance, disability insurance and severance benefits. Employers who provide benefits under a plan are free to modify or terminate the plan. However, under the Employee Retirement Income Security Act of 1976 (ERISA), employers who provide such plans must provide the designated benefit to the covered participant upon the happening of the specified event. For example, once a covered employee becomes seriously ill, an employer cannot refuse to provide health insurance coverage. Similarly, ERISA prohibits an employer from terminating an employee for the specific purpose of preventing or interfering with the employee's use of the plan. ERISA also imposes fiduciary obligations on certain administrators and sponsors of ERISA plans.
Vacation, Holiday and Paid or Sick Time Off
Employers likewise have no obligation to provide paid time off from work. For those that do, state law answers questions about vacation, holiday or paid or sick time off, such as:
- when and how an employee accrues paid time off; and
- whether an employee is entitled to accrued but unused time off at termination; and
In Ohio, for example, courts do not impose vacation, holiday or paid or sick time obligations on employers. However, if an employer has a policy of providing time off, Ohio courts will hold the employer to it, even if the employer did not include the paid time off policy in an employment agreement.
Employers may also offer employee incentive plans, stock option plans or other forms of non-wage compensation. State contract laws govern most compensation benefits and the employer's plan, or an agreement between the employer and employees, controls the timing, amount and conditions of payment of compensation benefits.
Stock option plans are subject to federal tax laws that discourage stock option awards at strike prices below the underlying stock's fair market value at the time of the stock option award. See Guidance Under § 409A of the Internal Revenue Code.
Relationship between Employee Benefits and Leave Rights
Employee benefits such as disability insurance, vacation or other paid time off, provide an employee with compensation or other valuable benefit when he or she is away from work. A related but different employee right is to restoration to his or her job when he or she is ready to return to work. An employee's restoration rights are found primarily in the Family and Medical Leave Act, the USERRA Military Leave Act and similar state laws.
As a result, an employee's absence from work often implicates two separate sets of law. Specifically, one set of laws will determine what, if any, benefit the employee may receive while he or she is on a leave of absence. The other set of law determines what rights, if any, an employee has upon his or her return to work. Benefit and restoration questions arising out of an employee's absence from work while on leave are thus some of the thorniest and confusing questions faced by employees and employment lawyers.
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