Can Employee Benefit Plans Be Taken Away?

There is a lot of confusion surrounding whether or not employee benefits can be taken away from employees without their consent and/or knowledge. To ensure you are as knowledgeable about this topic as possible, here we answer some commonly asked questions concerning the ability of an employer to take away employee benefit plans.

Can Employee Benefits Be Taken Away Without the Employer Knowing?

Simply put, the answer to this question is both yes and no. As an employer, you are not legally able to remove benefits without the employee having some previous knowledge. There are a few different laws and regulations that regulate how employers can cut benefits without informing their employees, as a way to protect employee’s rights. Typically this includes plenty of notice with a legal explanation such as financial problems.

What Benefits Are Protected Under Law?

It is important to understand that some employee benefits are not just perks that inspire your employees to show up to work. Instead, they are a form of contractual compensation that goes hand in hand with their salary, meaning as an employer, you are not able to take away your access to them without some sort of warning. A contract of employment was signed by both of you before the employee’s first day, and it must be followed. Generally speaking, the benefits that employees are entitled to by law include social security, unemployment insurance, family medical leave, and worker’s compensation insurance. So this means that as an employer, you must allow for unpaid family leave if the employee qualifies under FMLA, you must pay unemployment insurance if you terminate the employee, and if the employee is injured on the job, the employer must cover your worker’s compensation.

Additionally, employers are required to withhold state and federal income taxes from an employee’s paycheck, as well as paying a matching amount to Social Security and Medicare tax. If this is not done, any employer can be held liable by the Internal Revenue Service.

All employees are guaranteed the above benefits by law. If an employer removes them, they are liable to legal action.

What Benefits Are Not Mandated By Law?

It can come as a surprise that many benefits are not mandated to be provided by the employer. For example, this means the employer is not legally obligated to provide vacation days and paid time off, retirement savings accounts, life insurance policies, and/or any other perk you may think of. While these benefits tend to be attractive when it comes to attracting top talent to the business, employers can eliminate them for business purposes at any time as there is no legal requirement for these benefits.

Are Employee Benefits Guaranteed Under a Contract?

Some larger companies offer the ability for their employee to join a union, which is meant to help protect employees from certain harmful actions from their employers, including the elimination of benefits. Usually, those in a union have a legal contract set up with the employer that distinctly lists out each benefit they will offer, and the employer is legally responsible to fulfill it.  

Can Employee Benefits Change Based on Demographic?

No, it is illegal for any employer to take away benefits based on an employee’s age, race, gender, and/or sexual preference, to name a few examples. Doing so would be discrimination.

However, there is an important distinction to make here when it comes to providing different pay rates to different employees based on seniority and/or job function.  Employers are allowed to make specific changes to different bands of employees, meaning employees that are full-time compared to those that are part-time or those that are senior managers to entry-level employees. This means different “classes” of employees may have different benefits packages, but employers cannot apply different benefit rules to some employees over others.

Can An Employer Change Compensation Without the Employee’s Consent?

The short answer is no. Again, this is where the employment contract comes into play. This is a legal contract that listed out an agreed-upon wage statement, and a change of compensation without consent would be a breach of contract.

With this in mind, the word “consent” can be confusing. Each state has different laws on how much an employer can change wages while still being within the scope of the contract. Generally, this can range from a 5% to a 15% change, depending on your location. But despite this, as an employer, you still need to provide a brand new employee compensation contract if wages increase or decrease.

Can An Employer Take Away A Bonus?

The answer to this question is maybe. If the bonus is discretionary, your employer may choose to offer it to you for any reason or no reason at all. These bonuses are often presented as gifts around the holidays or are dependent upon company performance. In most cases, if your employer decides to lower or take away a discretionary bonus, you have no legal recourse.

The alternative is non-discretionary bonuses which are based on specific criteria and are legally guaranteed. If this is the case, you may be able to file a claim against your employer for contract violation or failure to pay wages. It is also important to notice if the employee's pay is less than the minimum wage without the bonus.

Bonuses should not be advertised as a specific, guaranteed compensation rate.

Any employer should offer an ample benefits package to their employees, not only to attract top-quality candidates but to retain fantastic employees to your teams for years to come.

Are you curious what employers like you are offering their employees? Download our benefits benchmark report, Mployer Insights to see how your benefits plan stacks up. Looking for more exclusive content? Check out what’s trending on theMployer Advisor blog.

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