We are implementing flexible spending accounts August 1. We have several hundred people on leave of absence (including FMLA). Does anyone out there have any info on how to handle FSAs while on leave? Our vendor said an employee cannot do dependent care while out on leave since purpose is to pay for dependent care so you can work. So do you stop their deductions? Then when they return resume? What about a healthcare FSA? Do you allow employee to keep paying while out (and thus lose the pre-tax benefit) or cancel until they return? Do you let them access the funds while they are on leave? For example, if I go out to have a baby, and I've set aside money to pay for that, it seems I could use my healthcare FSA to pay for expenses.

The effect that leaves have on FSA accounts vary with the account and the type of leave involved. An unpaid leave is a change of status and allows participants to change their election. The day care account deductions could be reduced to zero when the employee goes out on leave and started up when they return to work.A different example would involve FMLA leave and the unreimbursed medical expense FSA. An employer could allow an employee to accelerate their deductions to cover the period they are out on leave. This enables the employee to still enjoy the pre-tax benefit of the 125 plan. The employer could "catch up" when the employee returns from leave by adjusting withholding provided it all happens in the same plan year.The after tax payment by the employee while out on leave is also an available option.This whole area can be very confusing. I would suggest asking your FSA vendor as they must have addressed these issues with their other customers. If you need additional help, e-mail me directly.