Impact on Business of Growing Interest in Paid Family and Medical Leave

First, it’s helpful to understand the difference between two similar, related terms: short-term disability and the Family and Medical Leave Act:

• Short-Term Disability Insurance: This benefit pays an injured employee compensation or income replacement for a non-job-related injury or illness when they are unable to work for a limited time. Many employers offer short-term disability insurance to their employees. Five states — California, Hawaii, New Jersey, New York, and Rhode Island — mandate that employers offer the coverage. One benefit to employers who provide short-term disability insurance is the federal tax deduction they get.
• Family and Medical Leave Act (FMLA): This federal law requires employers to guarantee employees up to 12 weeks of unpaid leave for certain family or medical reasons. Employers also must offer employees who take FMLA leave a job when they return to work — though not necessarily the same job — with comparable pay and benefits. Companies with fewer than 50 employees are exempt from the law. Employees are eligible if they have worked for the employer for 12+ months, and at least 1250 hours over the past 12 months, and work at a location that employs 50 or more employees within 75 miles. There are also special rules applied to military family leave.

Paid Family and Medical Leave

Paid family and medical leave (PFML) is generally offered at the state level and provides paid leave benefits to employees who are experiencing the birth of a child or a serious illness. Since benefits vary by location, employees may also be able to get paid leave to participate in U.S. military activities or support a family member who has a serious medical condition. Currently, at least nine states — including California, Massachusetts, New York, New Jersey, Rhode Island, Connecticut and Washington D.C. — already require or will in 2022 begin requiring employers to offer PFML.

PFML is funded by paycheck withholdings and administered by the state where the employee works. Since each state oversees its own program, the rules differ from state to state. For instance, in Massachusetts, PFML is available to full-time and part-time seasonal employees. Employers are required to impose a tax of no greater than 0.75% of eligible wages, with the maximum amount coming out of employee paychecks being no more than $0.38 per $100.

Self-employed individuals in Massachusetts may contribute but are not required to. Certain employers may apply for an exemption from collecting, remitting, and paying PFML contributions. However, Massachusetts plans must have benefits equal to or greater than the benefits provided by the PFML law, as well as the same rights and protections.

An employee may be eligible for both short-term disability benefits and PFML, but the two benefits cannot be taken at the same time. For instance, a new mother who qualifies for short-term disability after giving birth can choose to take all or any portion of her available short-term disability weeks and then take PFML at any time within the first 12 months; or she could take PFML without using any short-term disability. Whatever an employee decides, no more than 26 weeks of combined short-term disability and PFML benefits are allowed in a 52-week period.

The Future of PFML

There is interest in requiring employers in all states to offer 12 weeks of paid family and medical leave. Democrats included the provision in the draft bill of their $3.5 trillion spending plan. Republicans strongly oppose the spending package, saying that it will overheat the economy. The spending plan “would drown American families in debt, deficits and inflation,” according to Senate Minority Leader Mitch McConnell.

Democrats say the purpose of the measure, part of their Build Back Better Act, is to guarantee workers with time off to raise newborn children or deal with a medical emergency. If approved, the benefits would be effective in 2023 on a sliding scale, with lower-earning workers experiencing the largest bulk of their pay replaced monthly.

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