Learn Ins And Outs Of Unpaid Leave

People take unpaid leaves from work to tend to some of the most important things in their lives. If a baby is on the way or a parent is seriously ill, financial concerns may seem trivial. But taking care of those details allows you to focus on what’s most important.

“You’ve got to get yourself together,” said Elizabeth Cohen, 32, a systems consultant who had her first child in September. Cohen knew she must plan ahead to make her maternity leave free of money worries. “You want to be there with the baby emotionally,” she said.

The federal Family and Medical Leave Act of 1993 requires employers with 50 or more workers to give eligible employees up to 12 weeks of leave for childbirth, to care for their own serious health condition or care for a sick family member. The act does not require an employer to pay the bills.

If you prepare beforehand and get all your financial ducks in a row, you’ll experience less stress to compound an already challenging situation - “Something we don’t do,” said Barbara Ray, a certified financial planner.

“Don’t assume anything,” said David Lampe, president of Houston Asset Management. “Make sure you understand what your responsibilities are and what the responsibilities of your employer might be, so you don’t leave yourself unprotected.”

Here’s a checklist of areas to consider:

Calculate your living expenses. Don’t think your costs will fall just because you won’t be working and won’t have work-related bills.

“That’s just a myth, because even if you may not be faced with this expense, you’re faced with another set of expenses,” Ray said. “If the (sick) relative lives out of state, you’ve got travel expenses.”

Start by determining whether any income from your spouse or relatives will come in while you’re on leave or if you’ll get any pay for part of your time off. For example, you might be able to use your accrued paid time off as part of the leave.

When calculating expenses, don’t forget to include some money you can use to help feel better emotionally, said Debra White Stephens, president of the Houston Chapter of the International Association for Financial Planning. “You’re going to need some kind of a stress reliever, like mother’s day out or somebody in when you’re taking care of an elderly parent, so you can do something for yourself,” she said.

Stash away funds to help cover your expenses in a low-risk account that you can get to easily, Stephens said.

Determine what will happen to your benefits. People often take employee benefits for granted. But just because an employer promises to hold your job open doesn’t mean the company will continue to offer benefits.

The Family and Medical Leave Act requires employers to maintain your group health insurance coverage during the leave. However, if you’re paying part of your health insurance premiums, you need to ask some questions.

“What kind of premium payment terms are you going to have during the term of your leave?” asked David Dross, a consultant at the Houston office of William M. Mercer, Inc. “Is it something you will have to pre-pay premiums for the entire three months upfront?” If you miss a payment, you could jeopardize your coverage.

Also, be aware that although inexpensive, temporary health insurance policies are extremely restrictive on pre-existing health conditions.

Ask how your leave will affect life insurance. The federal law doesn’t cover life insurance as it does health insurance, said Michelle Miears of Buck Consultants, a Houston employee benefits research firm.

Your company may require you to pay the insurance premiums - or it could continue coverage at no cost to you, she said. “Sometimes that language in the policy is so obscure that it’s very difficult for an employee to sort out,” Miears said.

Ask about disability insurance. The federal law doesn’t require employers to continue that coverage.

“That’s the scariest one,” because disability is much more likely than death, Miears said. “A lot of times these things fall apart, because no one thought to ask.”

Check on retirement plan loans. When you stop bringing home paychecks, payments on any loans from your 401(k) retirement savings plan may also stop, because they’re typically deducted from your pay.

Typically, you can go a full quarter without making a payment, Susan Ogden, a principal at William M. Mercer’s Houston office, explained. Make sure that’s the case, and look for a way to make payments if there’s a potential problem.