Your employees might have a change in family status while at your small business. An employee could get married, while another might give birth to or adopt a child. When your employees have a family status change, you need to update payroll records.
What is a family status change?
Change in family status is when an employee’s benefits change as a result of one of the following qualifying life events (QLEs):
- Legal marital status change (marriage, death of spouse, divorce, legal separation, and annulment)
- Addition or reduction in the number of dependents (birth, adoption, death)
- Employment status change (commencement or termination of employment, strike, promotion, commencement of or return from an unpaid leave)
- Dependent is no longer eligible (age, student status)
- Change in spouse’s employment status
- Change in residence
- Loss of insurance coverage
What benefits might change?
Your workers might elect to receive your small business employee benefits. Your employees may add their spouse and children (dependents) to be covered under their benefits plan.
Here is a list of benefits that might be affected by an employee with a change in family status:
- Health, dental, and vision insurance
- Disability insurance
- Life insurance
- Accident insurance
- Retirement plans for small business
For example, one of your employees gets married. She wants her new husband to be added under her health insurance plan. This would be a family status change.
Open enrollment
Open enrollment is the period of time employees can enroll in a health insurance plan. It runs from the end of the year to the beginning of the next. Open enrollment allows employees to make necessary changes to their benefits for the upcoming year.
Typically, employees cannot enroll in a health insurance plan outside the open enrollment period. However, the change in family status rules per IRS say that employees can change their benefits as the life event takes place.
Updating payroll for an employee with a family status change
When an employee has a qualifying life event that leads to a change in family status, you are responsible for updating payroll records.
Make sure you make changes in the following payroll records at your small business. Always keep records current for accuracy.
Benefits
An employee can change their benefits election as a result of a family status change. When an employee has a qualifying life event, they can do one of the following within (typically) 60 days of the event:
- Enroll
- Switch enrollment to another plan
- Increase enrollment
- Decrease enrollment
- Cancel enrollment
If an employee with a qualifying life event decides to change their benefits election, they must complete a new Benefits Enrollment Form. You might give your employees access to benefits in an online employee portal software. If that is the case, instruct your employee to make changes online. If not, provide them the form.
Keep a copy of this form in your employee’s confidential file. And, provide them with a copy of their updated plan. You will also need to submit the form to your business’s insurance company.
Making alterations in an employee’s benefits will also impact their payroll withholding amount each pay period. Be sure to withhold the proper amount from an employee’s paycheck if they decide to change their benefits election.
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Form W-4
Employees with a change in family status may want to update their Form W-4, Employee’s Withholding Certificate. Make sure you have current records on your employees, including their federal income tax withholding.
An employee who has a baby, for example, gains another dependent. They may want to add the additional dependent to their Form W-4.
If an employee with a family status change updates their Form W-4, make sure you withhold the correct amount to send to the government. Be ready to offer W-4 help if your employee has questions. Keep the updated form in the employee’s payroll records.
Direct deposit information
If an employee has a family status change that requires them to alter their bank account, you need to update their direct deposit information. Without doing so, you won’t have correct records to pay your employee.
Emergency contact information
Emergency contact information is one record you must keep on file for each employee. If an employee gets married or divorced, they may want to update their emergency contact information to reflect the change.
Store the updated emergency contact information in the employee’s file.
Form I-9
You might update Form I-9 if your employee has a family status change that changes their legal name, like a marriage or divorce. But, you are not required to update this information.
If you decide to change the employee’s name on Form I-9, you must fill in Section 3. Complete the “New Name” box with the employee’s updated name and store the form in your records.
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This article has been updated from its original publication date of February 3, 2017.
This is not intended as legal advice; for more information, please click here.
