A large employer with 7 entities and a total of 350+ employees offers medical, dental, and vision to all entities. The employer currently treats each entity separately, offering FMLA only to entities with 50+ employees. Is this allowed? Since some entities have fewer than 20 employees, should they be offering state continuation coverage for 12 months instead of COBRA for 18 months?
It is possible for entities to be considered separately for FMLA but not for COBRA.
For FMLA threshold purposes, employees are counted at the entity level unless the separate entities are considered an “integrated employer.” The FMLA regulations establish a multi-factor test to determine whether separate business constitute an “integrated employer.” The factors that must be considered are:
- Whether there is common management between the entities
- The degree of interrelation between operations
- Whether there is centralized control of labor operations
- The degree of common ownership or financial control
The regulations specify that no one factor is determinative, and the entire relationship is to be reviewed in its totality. If the entities constitute and integrated employer based on the above factors, the employees of all entities making up the integrated employer must be counted for FMLA coverage purposes.
The counting rules for the federal COBRA small employer exception are different. A group health plan is not subject to federal COBRA if all employers maintaining the plan normally employed fewer than 20 employees on a typical business day during the preceding calendar year. Employees of any related employers under common control must be counted to determine whether an employer has 20 or more employees. The IRS common control rules are complicated and depend on the business relationship between the entities, but the rules are based on common ownership. In the situation you describe, it sounds like there is one plan and the different entities participate in the plan. If that is the case, all employees of all of the entities are counted for COBRA purposes. This means the entities with fewer than 20 employees are included in the large employer’s count of employee for federal COBRA purposes and are subject to federal COBRA.