As the economy recovers, you may be contemplating rehiring talented employees that were laid off during the economic downturn. This strategy can save considerable dollars. Rehired employees require less training; no recruiting costs are incurred and the rehired employee already knows your company’s procedures, its culture as well as the staff.
As you look to rehire past employees, there are several aspects to consider during the rehire process. We recommend writing out a defined policy so that it is easy to implement and communicate. Besides the work performance of the individual, key considerations in the rehire should include:
1. Considerations about retirement plan eligibility. The Internal Revenue Code may allow retirement plan eligibility and vesting to be reinstated for breaks in service less than five years. Employers can generally assume that individuals can re-enter the retirement plan on the next eligibility date with vesting accrual intact. Employees can more often than not return distributions to the plan to restore prior matching contributions. Contact your plan administrator for more information regarding eligibility reinstatements to your specific plan.
2. Employees in general must satisfy eligibility requirements for health and welfare plan reinstatement unless a rider to the plan provides otherwise.
3. Employees can continue COBRA during the wait period.
4. In most instances, section 125 Flexible Spending Account prior elections will reinstate unless the employee experiences a “change in status”.
5. Severance benefits may continue unless the severance agreement states that severance benefits will cease upon rehire.
6. Employers can choose how to treat vacation accrual in rehire situations but the decision must be treated consistently across all employees. Employers should communicate its policy in the event of rehire in the employee handbook. To conserve costs, employers may want to treat rehired employees like new hires in terms of vacation accruals. If the employer promotes work/life balance or wants to hire back highly skilled employees, this scenario may not be recommended.
7. In future severance agreements include a “no-application” clause to prevent termed employees from re-applying. Failure to rehire could result in costly employment lawsuits.
*Source SHRM legal report from Sept-Oct 2009, Frank Palmieri
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