On Dec. 22, 2017 the Tax Cuts and Jobs Act created an employer tax credit for Paid Family & Medical Leave. Some states have passed laws that create paid family leave plans and a bill has been presented to Congress for a national Paid Family & Medical Leave that has similarities to FMLA (with the added benefit of receiving a portion of your salary while on leave). We know it’s only a matter of time until more states adopt paid medical leave laws and we will eventually see a paid leave law on the federal level. So what does this mean for you as an employer?
Below is my overview of paid family and medical leave you can also download our compliance overview(s) for more information.
Employer’s of all sizes please take note!
No matter what size your organization is you qualify for a tax credit if you have a paid family and medical leave policy in place. Even if your organization is not subject to the federal FMLA, you can have a paid family and medical leave policy and receive a tax credit. Of course, there are guidelines that have to be followed (download our complete Compliance Overview for more details). This is a benefit you can add to your total compensation package that is a win-win for your organization and your employees.
I understand, you might be asking “How does providing paid leave benefit my company?” Or maybe you’re thinking about how stressful it will be to have an employee out of work for any period of time. I would urge you to read this article published in CNBC that highlights how paid family leave can be a win-win for both – employer and employee. This article addresses concerns such as the affect on the bottom line, additional expenses to the employer, administrative hassles and highlights the benefits of a paid family leave.
Currently, three states (Massachusetts, New York and Washington) along with the District of Columbia have enacted paid family and medical leave laws. The laws in these states are in various stages, with NY the only state that employees can collect benefits from.
New York: Law was effective Jan 1, 2018 and the program funding is entirely through employee payroll deductions. Employers in NY are not required to contribute to this fund.
Massachusetts: 1-1-2019 Employers begin remitting contributions for paid leave benefits and workers will be eligible for paid leave effective 1-1-2021. The payroll tax can be split between employer and employee but for companies with fewer than 25 employees the employer is not required to contribute to the fund.
Washington: Payroll deductions begin 1-1-2019 and beginning 1-1-2020 eligible workers may receive benefits. Funding is through employer and employee payroll contributions but organizations with less than 50 employers are not required to contribute to the fund. If an employer with less than 50 employees contributes to the fund they are eligible for grant assistance.
Washington D.C: Employers will begin making payroll tax contributions on 7-1-2019 and workers can begin collecting benefits on 7-1-2020. This is funded by employer tax contributions and pooled into a collective fund for the paid leave program and all employers in Washington D.C. regardless of size are required to contribute.
If you’re an employer outside of one of these states but you want to add a paid family leave policy to your organization you have other options. Insurance carriers offer plans that you can add to your total compensation package. Below are the are the eligibility requirements for the tax credit:
Qualifying employees: You must provide paid family and medical leave for all qualifying employees. A qualifying employee is one who has been employed for one year or more and in the proceeding year compensation has not been over $72,000 (for 2017).
Amount of paid Leave: the policy must provide at least 2 weeks of annual paid family and medical leave (for full-time employees).
Payment Rate: Payment rate cannot be less than 50 percent of the employees normal wages.
No retaliation or discrimination: Non FMLA eligible employees the policy cannot discriminate or retaliate against an employees right to paid leave under the policy.
In general; the policy needs to be in place before the leave which the employer is claiming the tax credit for. The amount of the tax credit is based on a percentage of wages that are paid to qualifying employees for the leave. The percentage amount begins at 12.5 and is capped at 25 percent. If the paid leave policy allows the employee to be on leave for longer than 12 weeks the tax credit is only applicable for the amount of leave paid up to 12 weeks.
On a National Level
The Family and Medical Insurance Leave (FAMILY) Act would create a national family and medical leave insurance program. The bill has been put before Congress, and I believe it is only a matter of time before we will see it (or something similar) passed into law. The national partnership for women & families has a detailed FAQ on the FAMILY Act. You can read it HERE.
These paid family and medical leave plans are important because employees need to feel that they can take time to care for themselves or a family member and not be stressed about job loss or having no income at all. Employers want to retain their employees because lets face it, turn-over is costly. In addition if you're an employer that offers a paid family leave as part of your total compensation package, your organization will stand out as an employer of choice when you're recruiting new talent.