A break in service is any set of circumstances in which there is an interruption in the employment status of an employee. During this period, a number of benefits, including any employee contribution plans, pension plans, or other defined-benefit plans, may be subject to slightly different policies and procedures. A break in service continues until either the employee’s connection with the employer is permanently terminated, or the employee is reinstated to his or her former status and regains access to all benefits associated with that position.
A break in service may occur for several reasons. One of the most common is a lack of work available for the employee. Rather than terminating the employment altogether, the employer may choose to impose a temporary layoff. During this period, the employee usually does not receive a salary or wages from the employer, but may continue to enjoy certain benefits such as health insurance coverage. Typically, contributions to pension or other benefit plans are frozen during the break in service, with the anticipation being that the employee will be recalled once work is available. Depending on the laws that govern unemployment compensation within the jurisdiction, the employee may be able to draw unemployment benefits during the downtime, if the employer notes that the layoff is due to a lack of available work.
Another example of a break in service has to do with the number of hours an employee works in a given calendar year. Should the employee not work the minimum amount of hours, access to various benefits may be restricted for a given period of time. Once the employee does work enough hours to merit a return to his or her former status, access to those benefits is restored and the break in service is considered ended.
There are typically some limitations on how long a break in service may continue. Many companies have a policy of moving from this status to terminating employment if the period of inactivity lasts for longer than a year or two. For example, an employee who is laid off due to lack of work may be permanently terminated if the employer does not secure enough work to merit recalling the employee to active service after one to two years. At that point, the layoff ends and the relationship between the employer and employee is considered permanently severed.
In some areas, an employee who is experiencing a break in service is not required to settle for unemployment benefits. With the permission of the employer, it is possible to seek temporary employment elsewhere. The proviso is that the employee will return to full service with the employer when needed. Should the employee choose to decline a return to active service, the employer has the option of ending the break in service by firing the employee, effectively ending the relationship between the two parties.