A Leave Law That Just Won’t Go Away

Technology and outsourcing can help alleviate the paperwork burden associated with the Family and Medical Leave Act.

By Diane Cadrain Jul 1, 2010

0710cover.gifWith 42 human resource professionals managing compliance in 48 states, Stanley Black & Decker executives faced a challenge in dealing with a law that many HR managers say they love to hate: the federal Family and Medical Leave Act.

In 2007, “fragmentation alone told us we had to centralize,” says Fiona Mohring, a benefits project manager with the New Britain, Conn.-based toolmaker. In addition, suspected abuse of intermittent Family and Medical Leave Act (FMLA) leave at one of the company’s Midwestern facilities had HR managers struggling to complete paperwork. “It was a drain on HR productivity,” she says.

A similar situation existed at Alstom Power, where 10 professionals managed compliance with the act for about 45 locations. FMLA administration wasn’t centralized, says Celeste Shea, manager of health and welfare benefits for Alstom, which builds energy and rail facilities worldwide.

The experiences at Alstom and Stanley illustrate two reasons employers outsource FMLA administration: to consolidate practices and to remove work from HR professionals’ already-loaded agendas.

Contracting for these administrative services reduced Alstom’s workload. Now, one administrator oversees intake, processing, time tracking and communications, Shea says.

Like her peers at Alstom and Stanley, Linda Fonteneaux of Nokia acknowledges that her business case for outsourcing FMLA administration was based on a desire for simplification and compliance. She also cites a third reason for seeking a service provider: securing personal information. “The decentralized model was fraught with inconsistencies, and the keeping of employee unsecured personal health information left Nokia vulnerable,” says Fonteneaux, the cell phone giant’s benefits manager for North America.

According to attorney Linda B. Hollinshead of Duane Morris LLP in Philadelphia, two categories of employers tend to outsource FMLA administration: larger companies with 20 to 80 cases at a time and companies with multiple locations that lack on-site HR professionals.

Administration becomes more difficult for companies with 150 or 200 employees and for companies that have a lot of long-term employees, says attorney Matthew S. Effland of Ogletree Deakins in Indianapolis. In the latter case, more employees are likely to have worked 1,250 hours in the previous 12 months and therefore be eligible for FMLA leave.

The legal landscape keeps growing more complex: States began passing family and medical leave laws in the mid-1990s, leave became entrenched with workers’ compensation and the Americans with Disabilities Act, and the FMLA was amended. “Employees started to have lots of leeway to get off work, and employers struggled” with the administrative burden, says Linda Ellzey, assistant vice president for leave of absence programs with Matrix Absence Management in Philadelphia.

No Frills or Full Service

As more HR executives conclude that they need special expertise for this complex HR function, they find solutions ranging from no frills to full service.

QQuest Corp. offers a solution that lies at the no-frills end of the spectrum. The Michigan company provides an automated service for tracking FMLA leave: a call-in feature with an Internet component. “We deal with the three biggest frustrations of FMLA administration”—communication, paperwork and time tracking—says QQuest President Rich McGlew. QQuest serves 25 employers with 70 to 1,000 employees each. Clients pay a flat fee per employee per month, with a small charge for phone-in minutes. They’re basically paying for access to the system, McGlew explains.

The QQuest claims process typically begins when an employee notifies a supervisor of intent to use FMLA leave or when the system tags a three- to five-day absence as potentially eligible for FMLA leave. Once notified, an HR professional—who typically has the authority to enter data into the system—tentatively approves or denies the leave. After receiving medical certification from the employee’s doctor to support the request for leave, the HR professional makes the final decision; if the leave is approved, the system starts recording absences. Employees and HR professionals can view the records for accuracy.

Many employers aren’t aware of this middle ground between letting go of FMLA leave management completely and managing it in-house, McGlew says.

RSL LeaveManager, a product of Reliance Standard Life Insurance Co. of Philadelphia, also lies at the no-frills end of the spectrum. The web tool tracks FMLA leave for companies with 50 to 2,000 employees, explains Greg Esemplare, assistant vice president in charge of integrated employee benefits. The software manages FMLA leave and integrates leave and absence data.

Typically, the employer decides who will have access to the system. For example, HR generalists or administrative assistants might have view-only access so they can provide answers to employees’ questions. Administrators might enter and modify leave information. A head administrator sets parameters—such as how eligibility is calculated—and monitors other administrators’ work. Employees also can access the system to monitor leave.

“Anyone with secure administrative access can initiate a leave request, enter the appropriate data and follow the leave, hour by hour,” says David Gittelman, Reliance’s director of marketing.

“LeaveManager uses the eligibility standards of federal law and regulations, but it has an ‘overturn’ feature that allows the employer to be more liberal” than the FMLA mandates, he explains.

The product is bundled with Reliance’s long-term disability offerings for an extra charge. “The cost is nominal because we’re interested in selling and retaining core disability customers with meaningful added value,” Gittelman says. Currently, LeaveManager serves 112 clients with a total of 42,000 employees.

Plan the Procedures

At the other end of the continuum are third parties that take FMLA administration entirely off HR professionals’ hands. Insurance giants such as Aetna, The Hartford, MetLife and Unum offer such services, often to insurance clients.

Stanley Black & Decker contracts with Aetna. Most claims combine short-term disability leave and FMLA leave. The employee calls an 800 number, and an Aetna analyst enters the claim into a computer. The software puts the information through a decision tree and prompts the analyst to ask the employee appropriate questions. Then the information goes to a coordinator at Aetna, who contacts the employee to identify himself or herself as the point of contact and to ask where documents should be mailed, among other things.

Employees can fill out leave documents online, Mohring notes, but most prefer to get hard copies and fax them back. The coordinator approves or denies the leave, and HR managers receive notification.

Employees have access to the system and can monitor their leave.

In cases of intermittent FMLA leave, employees can log on to the system, reference claim numbers and record scheduled appointments. Employees must notify supervisors of each absence—entering information into the system doesn’t negate that responsibility. The system identifies potential abuse patterns, such as leave requests frequently falling on Fridays or Mondays.

As a claim progresses, the coordinator may reach out to the employee for updates. Throughout the process, the company’s HR professionals must monitor the system for accuracy, but Aetna handles all the administrative details, Mohring says.

Costs and Benefits

The cost of outsourcing FMLA administration can be minimal considering the headaches that are averted. “After pairing FMLA administration with disability insurance, there was minimal additional cost,” says Alstom’s Shea. “All it takes is one lawsuit to make it worthwhile, especially considering the differences in state laws.”

Her staff responded positively to the company’s outsourcing of FMLA duties to MetLife, she says, adding: “Our HR managers gave us resounding thank yous.”

At Nokia, Fonteneaux says, outsourcing saves the cost of paying extra wages to replacement workers covering for people with ineligible claims. An employee may be ineligible for FMLA leave if he or she hasn’t worked sufficient hours in the previous 12 months or if he or she lacks appropriate medical certification. (Even so, the employee may still be eligible for leave under the Americans with Disabilities Act or a state leave law.)

Another advantage: With a third party managing medical certification, documents can be checked for accuracy and the employee’s privacy remains guarded, says Laurie Armstrong, Nokia’s director of communications.

The traditional approach to pricing a contract is to negotiate a per employee per month charge and roll it into a per employee per year charge, according to Clayton Newman, a director in PricewaterhouseCooper’s People and Change Practice. Employers also should ask about a vendor’s estimated additional pass-through or out-of-scope fees, such as mailing expenses and medical costs. These fees vary and should be included in side-by-side vendor pricing analyses, Newman says.

He recommends that the contract identify how the price would change if the volume of FMLA leave requests changed significantly during the contract period.

Consider Liability

Despite the advantages of outsourcing, experts warn that employers remain liable for FMLA violations.

Outsourcing frees a company up from administrative headaches but creates legal risk “because you’re giving up control,” Effland notes.

The act is a strict liability statute, he continues. “Even if it’s just a computer glitch, even if it’s an honest mistake by a third-party provider, the FMLA statute and regulations hold companies to their legal requirements. Don’t become complacent.”

A best practice is to train supervisors on FMLA issues annually, according to Effland. Managers should know, for example, that employees can invoke their rights to FMLA leave without mentioning the law. “You don’t want supervisors to disregard that emergency call. You don’t want them to make comments or act in a manner that could be considered retaliatory,” Effland points out.

Supervisors aren’t FMLA decision-makers. “A statement about the need for leave needs to be passed up the chain of command. If an employee says, ‘I need to leave because my kid is sick,’ supervisors need to pass the statement along to HR or to the third-party administrator and remove themselves from the process.”

Employers should keep legal teams involved in the FMLA outsourcing decision and process. “In some vendor contracts, employers can try to shift some liability to the third-party administrator as a pass-through,” Hollinshead explains. “For example, there’s the issue of the timeliness of notice to employees, which has to be given within five business days. If the [third-party administrator] slips up and the employee is harmed, the employee can sue the company, and if the contract has a pass-through, the employer” can sue the third party. “It’s hard to get this kind of indemnity, though, unless it’s mutual,” she concludes.

Understand the Technology

Employers should provide a robust data feed of employee information for the intake process to go smoothly, Esemplare says. The more employee information a system uses—name, address, Social Security number, work location and supervisor’s name—the more efficient it will be.

Coordinate and communicate with your HR team, employee assistance provider, payroll department and line supervisors to gain access to the employee information. Furthermore, because claims typically involve FMLA and short-term disability leave, the system should consolidate data from both types of leave to one source and run reports that reflect both, Esemplare advises.

“All the vendors we considered had Internet-based services,” Fonteneaux says, adding that most vendors allow employers to acquire access rights and licenses at a variety of secure access levels. Nokia’s HR professionals now feed encrypted files and transport employee data to Liberty Mutual’s FTP site. However, “there were options to provide spreadsheets; we found vendors could support data delivery wherever employers were on the technology spectrum.”

Look for vendors that can provide self-service, Newman adds: “Employees should be able to apply for leave online, and both employees and managers should be able to check their leave balances online.”

Manage the Transition

“The implementation plan should come from the vendor,” Shea says. The employer should ask for a plan. “In fact,” she says, “comparing 90-day implementation plans would be a good way to compare vendors.”

The vendor should tailor the plan to include announcements to the workforce, working with the HR department on required documentation, and providing ongoing training so supervisors and HR professionals can log on and track absences.

Nokia’s HR professionals chose a team approach for implementation and made sure the vendor knew that a smooth transition was important, Fonteneaux says. She needed buy-in from her HR staff members, who still handle components of the process. For example, managers become aware of employees’ leave status through HR professionals who help them temporarily fill positions while employees are on leave. And Nokia’s California internal HR team monitors for compliance with state regulations and holds counseling sessions on leave policies and available resources.

The team approach “increased the feeling of ownership of the decision by the entire community. Members became vested in the success of the new selected vendor,” Fonteneaux concludes.

The author is an attorney and writer who has been covering workplace legal issues for 20 years. She is a member of the Human Resource Association of Central Connecticut.

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