Today marks the 25th anniversary of the signing of the Family and Medical Leave Act (FMLA) into law. It is hard to imagine that 25 years ago, employees had no mandated job protection to take leave for the basic rights under the FMLA – time needed for their own or a family member’s serious health condition, the birth or placement of a new child, certain activities related to a military exigency, and military caregiving. And while the FMLA has become a standard part of most employers’ well-used benefit offerings, the tide continues to rise when it comes to the latest development in leave of absence: paid family leave.
State-mandated paid family leave is required in a handful of states – New York, California, New Jersey, Rhode Island, with Washington State and Washington D.C.’s benefits coming online in 2020. While employees welcome these enhanced benefits, multi-state employers struggle with the patchwork approach to regulating this benefit, which leaves employers subject to varying and sometimes conflicting requirements. This trend shows no signs of letting up, as state legislatures continue to propose more paid family leaves laws. In fact, it appears the floodgates have opened – in just the first month of 2018, bills have been introduced in a slew of states, including Colorado, Hawaii, Iowa, Indiana, Massachusetts, Missouri, Mississippi, New Hampshire, Virginia, Vermont, with more anticipated.
At the federal level, mandated paid family leave continues to be raised, but it remains to be seen whether it will gain any significant traction. Typically the purview of the Democratic lawmakers, President Trump’s recent endorsement of a federal framework for paid family leave in his State of the Union address signaled possible bipartisan support.
And we can’t forget about the recent Tax Cut and Jobs Act, H.R. 1, the newly-passed bill that contained a nugget for leave law enthusiasts. The Act included a tax credit for employers who provide paid family and medical leave. While embraced as an employee and employer-friendly benefit that will encourage paid leave for employers and employees alike, a deeper dive raises some sticky questions that have yet to be resolved. The law provides a tax credit for eligible employers – i.e., those employers that have in place a written policy providing a minimum of 2 weeks of paid family and medical leave for full time employees (and a pro-rated amount for part time employees), with a pay rate of at least 50% of the employee’s wages. The policy must allow leave for at least one FMLA reason. The amount of tax credit is limited to 12 weeks of paid leave, and the credit ranges from 12.5% to 25% of the amount paid, depending on the percentage of paid leave benefits.
Notably, any payments made by a state or local government or required by state or local law is not taken into account in determining the amount of paid family and medical leave provided by the employer. Clearly, this means that those amounts won’t be included in any tax credit calculation, but it raises a broader question as to employer eligibility. An employer is only eligible if their policy provides a minimum of 50% of the employee’s wages during the period of leave. If – as the law seems to say – amounts paid pursuant to a state-mandated paid family leave law are not included in that calculation, does a paid leave policy in states requiring paid family leave require an additional 50% pay benefit in order for the plan to qualify the employer as eligible? No guidance exists yet on this issue, and some employers are left scratching their heads. On a practical matter, tax attorneys crunching these numbers will likely compare the bottom line difference between the possible tax credit and the existing allowable deduction in deciding whether amending existing policies is worth their while. To add to it, the tax credit expires on December 31, 2019, further bringing into question the value of a wholescale policy change.
With no clear path for how, and whether, paid family leave will emerge on the federal legislative landscape, it remains a waiting game. Will states continue to pave the way for benefits by enacting robust, but complicated and conflicting laws on a local level? Will the federal Congress step in and preempt the field with a uniform federal scheme? 25 years from now, will we look back on these days and wonder how we went so long without a uniform framework for paid family leave? Time will tell, but in the meantime, we wish the FMLA a very happy birthday. Rest assured that ReedGroup is watching the trends, and will keep you informed on the latest in municipal, state, and federal paid family leave.