Take It or Leave It: The Rise of Outsourcing Leave Administration and What Employers Should Know About It

As attracting and retaining employees grows increasingly critical to a business’s success, the pressure is mounting for employers to ensure accurate and consistent execution of leave policies, sometimes across multiple corporate locations nationwide. However, it is becoming more and more difficult for employers to keep up and comply with the changing regulations regarding employee leaves of absence. With additional state and local leave and paid leave laws coming into effect and with the trend of more jurisdictions considering adopting such laws, administering leaves under the correct federal, state and/or local standards has become extremely onerous and the costs of mismanaging leave can be immense. As a result, the number of employers outsourcing leave management and related functions to third party administrators or “TPAs” is rapidly growing as a cost-effective and efficient way for employers to manage the challenges of compliance and administration of leave. While FMLA is the most common type of leave outsourced by employers today, employers are increasingly outsourcing the administration of other forms of leave including short and long term disability leave, ADA leave as an accommodation, employee assistance programs, group health, workers’ compensation time, paid sick and parental leave, military, personal and bereavement leave.  

Benefits and Risks of Outsourcing  

According to the Disability Management Employer Coalition’s 2017 Annual Employer Leave Management Survey, the most burdensome leave challenges facing employers today include:

  • relying on managers and supervisors for leave identification and enforcement;
  • training managers and supervisors on leave identification and enforcement;
  • tracking and managing intermittent leave;
  • understanding the impact of and interacting with the ADA when administering the FMLA;
  • concurrently managing ADA leave and workers’ compensation with the FMLA; and
  • controlling employee abuse.

Effective outsourcing, when planned and implemented in a thoughtful and deliberate way, can help employers manage these and other challenges more effectively by streamlining the leave process. TPAs can reduce the administrative burden on a busy HR department by helping to manage leave-related paperwork and meet required deadlines, tracking and reporting leave, ensuring consistency of process and regulatory compliance, facilitating communication between employers and employees on leave, improving customer service, accuracy and efficiency in managing leave.

Outsourcing can also minimize or remove the personal or emotional aspect of direct discussions between employees and management about sensitive health issues. Sometimes managers become overly involved in the process, so dealing with a neutral third party can put both the employer and employee more at ease and enhance the overall experience. Outsourcing can also increase privacy by helping to shield employers from the details surrounding an employee’s leave and prevent access to confidential employee medical records.  

Despite these many advantages, outsourcing also involves risk. For example, many employers believe that by using a TPA, they relinquish all liability for potential leave violations. Although steps may be taken to mitigate risk, outsourcing leave administration generally does not insulate employers from liability. Employers also essentially relinquish control over the decision-making involved in the leave process to the TPA, making it difficult for an employer to maintain control and oversight over the process. As such, frequent and effective communication between employers and TPAs is crucial to ensuring a smooth administration process and compliance with all legal obligations.

Best Practices for Dealing with TPAs

There are several best practices for employers outsourcing all or some of their leave management responsibilities that will facilitate your relationship with the TPA and avoid common hazards associated with third party leave administration.  

Maintain a Collaborative Partnership with your TPA.

  • Review your company’s leave practices and policies with your TPA and confirm which leaves will be outsourced. In addition, be sure that your vendor is knowledgeable about your company’s leave management policies and practices, as well as those of your competitors.

Open Communication is Key.

  • Clearly delineate and document the roles and responsibilities of each party, which activities and responsibilities will shift to the outsourcing partner and which responsibilities will remain in-house, the specific processes required to ensure seamless collaboration, and who will be the primary point of contact responsible for all communications with employees and managers. Hold regular meetings with your vendor to facilitate discussions about program feedback and concerns, and if warranted, to allow for changes to be implemented immediately. This will also provide a mechanism for the TPA and the employer to share their communications with the employee. A streamlined checklist with leave and other benefit request instructions is also an effective way to clarify the proper leave request procedure for the employee.  

Don’t Assume that your TPA’s Leave Administration Methods are Lawful.

  • Employers should confirm that their TPA’s leave management procedures comply with all applicable laws and regulations by obtaining information from the TPA regarding its process for evaluating leave requests, such as, what supporting information and documentation is required for the leave request and employees returning to work; when and for what reasons the TPA contacts employees; whether the TPA communicates with employees during leave; and whether the TPA integrates different types of leave in its request evaluation. Remember, even with outsourcing, employers may bear the ultimate responsibility for compliance with workplace laws.

Integrate FMLA, Disability and Other Leave Programs With End-To-End Absence Management.

  • The majority of leave requests are related to the employee’s own health and often one or more forms of health-related leave may be available to an employee requesting leave. Therefore, coordinating your FMLA leave process with disability and other forms of available leave is critically important since the failure to offer all available forms of leave in connection with an absence can lead to significant liability. Accordingly, employers should make sure that the TPA is considering all forms of leave available to each employee and that whenever a request for leave is denied, there are no other forms of leave available, whether or not management of those other forms of leave have been outsourced to the TPA. 

Ensure Managers are Properly Trained in Leave Administration.

  • At a minimum, all managers and HR staff who are interacting with leave-taking employees should be trained to recognize and respond appropriately to FMLA and ADA requests and to understand how employees might invoke their rights under FMLA and ADA to ensure they are gathering the right information and taking the right steps. Managers and HR staff should also be trained on the various communications that occur throughout the life of a leave request and when and why each communication is sent.

Fully outsource and Consolidate Outsourced Leave Administration to a Single Vendor.

  • Leave administration can be especially confusing and problematic where employers “co-source” their leave programs. Sometimes employers “co-source” by retaining responsibility for some leave management tasks internally while outsourcing others.  Often the outsourced tasks are those that are more complex or time-consuming such as payment coordination, medical review and medical certification. Another form of “co-sourcing” involves outsourcing some types of leave to an outside vendor while retaining control and administration of other types of leave in-house. In either case, overlapping roles and responsibilities between the employer and the TPA makes errors and miscommunications much more likely, which undermines the entire purpose of enhancing efficiency and reducing liability. Accordingly, fully outsourcing leave programs and all related management responsibilities is a generally more reliable and effective approach. Likewise, it also reduces cost, minimizes information sharing and lessens the amount of necessary communications between parties.

Establish and Maintain a Consistent Approach to Leave Administration.

  • Inconsistent handling of leave requests could lead to legal complications or inquiries from the DOL or EEOC. To avoid liability, leave policies should be uniform and applied consistently. Consistency should be paramount whether an employer decides to outsource leave administration or to keep the function in-house.

While TPAs may be a great resource for managing and administrating leave, employers should make sure that their TPAs are properly managed.  Before retaining a TPA, employers should weigh the risks and benefits to decide whether a TPA is right for the company’s structure, culture, resources, and specific needs.

This blog was written by Elisabeth Koloup Hall at Miles & Stockbridge.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.