Have a participant that is out of work receiving pay from Worker's Comp. He has not been making the weekly loan repayments. My reading indicates the only reasons for not making repayments are Military Service or a Non-Paid Leave of Absence.

Does this guy have to make repayments? Is he risking the loan becoming taxable via a deemed distribution?

Is worker's comp paid through the employer's payroll system -- so that there is a source for withholding? Or is it paid by a third party insurer?

He is not being paid through the employer's system. The employer has no direct way to continue the repayments.

If receiving workers comp isn't this person on some kind of medical leave? Medical leave allows for suspension of payments for up to one year.