I didn’t even consider this angle, but it certainly does make the problem even more vexing. What if the employee wanted to sign up herself AND her husband on the company’s insurance? Presumably she had been receiving a payout comparable only to a single person’s premium. When in fact, she had been “saving” the company more than that.
My company offers a cash incentive if I waive insurance, though it’s nowhere near the cost of insurance (or even their share of the cost). It is most definitely listed separately; I waived dental one year and it was a few dollars a pay period, and listed separately on my stub.
That is where you went wrong, by not accounting for it separately. Secondarily, the addition to base pay should be solely what they’d have paid for the employee only (avoiding the issue of “Well, I skipped coverage for my whole family so gimme MORE!!”). You may well have been doing it that way all along.
How have the raises she’s gotten all along been calculated? Since the cost of insurance has jumped so much every year, probably more than a normal raise would have been, that has got to be a substantial difference. If raises have been on the order of 5% a year but insurance has gone up 10% a year, her pay should have been something like this:
50,000 + 10,000
52,500 + 11,000 etc.
In the 5th year, her pay is 60,775 + 14,641, or 75,416.
So after 5 years, she’s earning 75,416. Someone who took the insurance is earning 60,775 (50,000 plus 5%/year).She’s gotten a 25% increase, while someone who took the insurance has only gotten 21%.
If instead, her salary was treated as if she’d been paid 60000, with the 5% raises each year (ignoring the health insurance’s actual cost) it hasn’t been a windfall for her - she’s taking home 72,930 which is 21%. In this scenario, you’re actually paying less overall than if she took the insurance: compare her salary of 72,930 with the insured employee’s 60,775 plus the 14,641 insurance, or 75,416.
You may need to look back to whatever official policies were written regarding the money-in-lieu, and be prepared to trot them out when (not if) this broad lawyers up. And show history of her raises vs. others’, and how they were calculated.
She can’t have truly forgotten waiving health insurance in lieu of extra pay, but if you can show her documentation of this being an official company policy, that may be sufficient to shut her up.
Something you didn’t mention. That 10,000 for insurance: if it is treated as employee salary, then you’ve been paying social security for it. So you’re paying her 10,000, plus another 700ish for social security / FICA (what’s the percent now? 6.85%?). She’s also paying social security on it. If the company pays for insurance, I think they don’t have to pay social security and I know the employee doesn’t either.
So you need to
- pull the documentation / crunch the numbers
- consult a lawyer and/or an HR consultant
- Set a very detailed, specific policy from here on out. It can be written so that people don’t get penalized, but it will cover you in the future.
The thing that bothers me is we have no idea what the initial conversation was. It could have been something like this:
Employer: We would like to extend an offer to you.
Employee: Yay! What is your final compensation offer?
Employer: You have two options. Option one is a $50,000 salary and your healthcare fully covered by us. The other is a $56,000 salary with no healthcare policy. If you later decide you would like to enroll in healthcare, we will deduct the extra $6,000 from your base pay.
Employee: Great! I’m covered under my husband’s plan, so I’ll take the $56,000 with no healthcare. I’ll contact you in the future if we need to adjust my salary and healthcare options.
Employer: Okay, that’s our deal. We agree to pay you $56,000 with no healthcare, and you’re salary will be cut if you choose to enroll in healthcare in the future.
Or it could have been like this:
Employer: We would like to extend an offer to you.
Employee: Woo-hoo! What compensation package are you offering?
Employer: We can offer $50,000 with full health care paid by us.
Employee: Ouch. That’s a much lower salary than I was expecting. I basically can’t consider less than $55,000. I’m not sure if I could consider that offer.
Employer: Keep in mind that we offer an extremely generous benefits package.
Employee: That doesn’t really matter. My husband has top-shelf healthcare that I’d lose coverage if I enroll in another plan, so I wouldn’t have any use for your healthcare. I really don’t even want to see the forms. Let’s just talk salary here.
Employer: Okay, I understand. Look, you are our strongest candidate, and we’d really like to bring you on. So to make the offer more attractive, we can raise the starting salary to $56,000. Does that work?
Employee: That sounds much better. Where do I sign?
Both are very different stories. Because it’s not documented, we have no idea how it went down. And because people tend to have selective memory when they have a lot to lose, we have no reliable way of knowing how it went down.
This is why when you offer somebody something, you have to document it. Honestly, the OP’s story doesn’t even add up. When an employee has a compensation package, the option to enroll in health care either is or is not a part of that package. It’s an either/or thing. It’s not Schrodinger’s cat, they can’t have healthcare “kind of” a part of their compensation package. Is that employee eligible to enroll in healthcare? Then they are, and it’s pretty low to carve out a chunk of their salary when they are just trying to get something that is a part of what was offered to them.
[QUOTE=Shagnasty;15662398
The most common way that they are wildly different between employees is when some are single, some have domestic partners, and some have whole families. The typically arrangement in the U.S. is for the employer to pay about 2/3’s of the TOTAL premium regardless of family size.
[/QUOTE]
That is very interesting and perhaps that kind of coverage depends on employment type or location but I don’t know of any private companies that pay anything towards dependent coverage at all. So that really isn’t an issue here. Even this person was paying for her coverage through her husband. It wasn’t being given free or at a discount.
I don’t quite know why you don’t understand that the insurance IS part of the package. It isn’t kind of or sort of, you take it or not. Where we went wrong was increasing an already agreed upon salary as a good will gesture for not needing the insurance. It certainly won’t happen again. The matter has been resolved and really the only people that will “suffer” are the people that come on board in the future that won’t be given anything extra for waiving the coverage. The company will simply pocket the money.
Someone else asked if she was a valuable employee or not. All of our employees are valuable so that really has nothing to do with the issue.
Really? That is incredibly common, almost ubiquitous, for salaried employees at stable companies. Total cost for a family plan in the U.S. is $17,000 - $21,000 a year and employers typically pick up about 2/3rds or more of that. It isn’t usually counted as part of salary at all. Every company I have ever worked for has paid for at least that much and my current one pays 100%.
Your company isn’t doing things the normal way. That isn’t a huge problem as long everyone involved realizes that. Are you saying your company health plans don’t cover spouses or families? I have never heard of such a thing.
Why couldn’t you just do it the right way with future hires, and credit them the insurance refund separately from their base salary?
If the insurance is not a part of her compensation package, shouldn’t it be as easy as saying “I’m sorry, but insurance is not a part of your compensation package. Please refer to the documentation your received when you were hired. If you would like to re-negotiate your compensation package, we will need to talk to HR.”
Verbal promises are worth the paper they are written on. If I get hired on and my boss says “You’ll get paid an hourly wage for forty hours a week, but I’m going to offer you an extra two dollars and hour if you put in an hour of unpaid overtime a day”, (lets ignore this is illegal) I may agree to it, but if eight years later I decide I only want to work the forty hours that are stipulated in my contract, my boss doesn’t really have a leg to stand on.
:dubious:
Why do you think an important part of Obamacare was letting children remain on their parents’ insurance until they’re 26? Hint, it’s not because those parents are paying for full-price health insurance. It’s because subsidizing employee dependent coverage is extremely common.
I’m starting to suspect that this “company” consists of four people, including Foxy and the CEO.
At least five. Don’t forget the lawyer who is there to tell the CEO how to run his company plus two very disgruntled employees (we know the employee from first story isn’t the same person because her husband died).
I always roll my eyes when people on this board make comments about my management style. I’ve been doing this for a long time and as I have said before, no one ever leaves unless they move, die or have a child. Those that do leave all want to come back. Especially if they work for someone else for a while.
However, things do come up in business, especially when an employer is generous and those things are handled on a case by case basis so that the issues do not reoccur. It is unfortunate that sometimes employers are better off going strictly by the book with no special allowances to avoid these types of misunderstandings. Nothing had to be formally changed in our company’s policies. We simply had to eliminate over compensating people that saved the company insurance premiums by pocketing the difference.
I do appreciate posting here because it gives me different a prospective on things when I can’t quite figure out what to do. Even though our attorney and our accountant can give me the legal advice, it is the personal advice that often helps me to see all sides of an issue.
:dubious: I guess I’ll pile on here. I’ve never heard of any company with employee-only (no dependents) health care.
ETA: Who has this? Fast-food restaurants maybe?