Planning on Taking a Leave of Absence?
Whether it’s inside an office or from your kitchen table, are you tired of work? Feeling burnt out? Maybe you need a longer break than a typical vacation without the constant emails, texts, and calendar reminders. There are many physical and mental benefits to a leave of absence.
If you are considering taking a personal leave of absence, research the impact to your benefits first! Here are some pointers to help you navigate your time off.
Healthcare Coverage
Typically, when you take a personal leave of absence, healthcare insurance continues for the first 30 days. After 30 days, the coverage terminates and you have the option to continue coverage through COBRA.
If you contribute to a Health Savings Account (HSA), your participation will continue for the first 30 days, and once you stop receiving a paycheck from your employer, employee HSA contributions cease. Your company will not make HSA contributions on behalf of COBRA participants.
Once the personal leave of absence ends and you return to work, your benefits will be reinstated as they were prior to your leave. Additionally, healthcare coverage and HSA contributions will resume as they were.
Time Off, Sick Time, and PTO
These three benefits all have different parameters. Sick time accrual will stop on your last company paycheck and resume when you return to work. Time off is a little bit different. It varies by company and by department and it’s not an accrued benefit. You will have to discuss this benefit with your supervisor. PTO accrual will stop on the date of your final company paycheck and will resume when you return to your job. Many firms offer PTO Cash Out Plans where you can get cash instead of using the days at your leisure.
What to do with your Equity Plans during Leave
The conditions for equity plans differ by equity type. For example, participation in an ESPP typically ends after 90 days of leave. On the 91st day, removal from the plan will occur.
If you have nonqualified stock options (NSOs) vesting will not be affected because NSOs have no vesting requirements. On the other hand, incentive stock options (ISOs) may cease to qualify as ISOs if your leave is in excess of 3 months. You will have to refer to your grant agreements and plan documents for the specifics. If you are confused about the language in those documents, I will review them with you!
During a leave of absence, RSUs are easy and straightforward because vesting is usually not an issue. If you have any performance awards the payment of the final value will be prorated for leaves in excess of 30 days.
Retirement Plans
When you stop receiving a company paycheck, contributions to your 401(k) plan, including loan payments, will cease. Upon return to your employer 401(k) contributions will resume and you can change your deferral as a percentage of your salary at any time. One option to consider is maxing out your employee contributions of $20,500 before taking your leave of absence. With this strategy the money is already invested and working towards your retirement while you enjoy your time away from work.
Different Kinds of Leaves
Keep in mind that there are other types of leaves that are different from a personal leave of absence. Other examples include, medical leave, parental leave and family care leave, and military leave. Different rules apply for different kinds of leaves. Regardless of the type of leave, your taxable income is temporarily lower, so it’s a great time to do a Roth IRA conversion or exercise options to take advantage of a lower tax rate.
I hope that you found this guidance helpful, and if you are taking a leave of absence, make it spectacular! If you have any questions about what to do before you go on your adventure, please feel free to set up a free consultation.