Colorado voters recently approved Proposition 118, which is a new Paid Family and Medical Leave (PFML) program for Colorado.
What is Paid Family Leave?
First, paid leave is designed to cover employees who need to be away from work to take care of their own medical condition, those of family members, cases concerning birth or adoption, military leaves, and safe leaves.
What PFML Looks Like in Colorado
The plan was designed to cover practically all employees in Colorado. Anyone who has earned at least $2,500 in wages over the base period is eligible. The base period is 4 out of the last 5 quarters. Job protection is afforded for employees who have worked for the current employer for at least 180 days prior to receiving paid leave benefits.
To put this into perspective, an employee earning $12/hour and working 4 hours per week would qualify.
The plan will pay up to $1,100 per week, with the actual benefit being a percentage of the employee’s income. It is designed to cover a higher percentage of first dollar income. The plan will pay the employee 90% of the first 50% of the average weekly wage (which is currently $1,228 in Colorado). The remaining benefit would be paid at 50%. You might need a calculator, but a person earning $1,000 per week would realize a weekly benefit of $745.40/week.
How Will We Pay for PFML in Colorado?
There is a cost to this new benefit, and it’s going to be shared by employers and employees. The initial cost is 0.9% of income, which is split evenly between employers and employees. There is an exemption for employers with fewer than 10 employees where the employer would be exempt from paying, but not the employees. Remember, that employee count represents people eligible for PFML, not the traditional “full time” or “benefit eligible” headcount.
How Are Premiums Paid, and are Benefits Taxable?
The authors of Proposition 118 were very specific in noting that the CO PFML benefits would be funded by payroll-deducted premiums, and that the funding is specifically not a tax. The authors also noted that the IRS would ultimately determine whether benefits would be subject to federal taxes. They did exclude the CO PFML benefits from Colorado State tax considerations.
With that, the CO PFML benefits fall into a similar bucket as disability benefits. The PFML plan will be funded with payroll premium deductions. That means businesses and employees will need to pay close attention to how premiums are paid.
Simply put, if premiums are paid with post-tax money, benefits paid are generally not taxable. Premiums paid with pre-tax money create a tax obligation when benefits are eventually paid.
Remember that employers and employees will split the cost of the PFML premiums 50/50. In most cases, the employer will pay their share as a regular business expense (pre-tax), which means that at least half of the PFML benefit will be taxable for the employee. Whether or not the employee’s share is taxable will depend on whether or not the employee premium was paid with pre-tax or post-tax dollars. If the deductions are done post-tax, the benefit would not be taxable.
How Does CO PFML Coordinate with Other Benefits Currently in Place?
Many employers already have benefits and leave policies in place to help employees in a time of need, such as STD, PTO, sick time, and FMLA. So how will Colorado’s PFML coordinate with existing programs?
- Sick days and PTO will still be needed for incidental absences. PFML covers serious medical conditions for the employee and family members, generally defined as under the continued treatment by a medical professional. Employees will still need sick time/PTO to cover incidental sick days and absences.
- Not all income is replaced with PFML. PFML pays a percentage of lost income, so employees won’t be making as much on leave than they would be if they were working. As an example, a person earning $1,000 per week would realize a weekly benefit of $745.40/week – roughly 75% that they were making before.
- Other benefits can supplement PFML to help make employees whole. An employee could use accrued sick time, PTO, and STD benefits to supplement the PFML benefit, provided the aggregate replacement income does not exceed what they were earning before going on leave.
- PFML covers a higher percentage of dollar-one income, but it’s capped, leaving higher-paid employees exposed. Not all income is covered under CO PFML. The plan will pay the employee 90% of the first 50% of the average weekly wage (which is currently $1,228 in Colorado). The remaining benefit would be paid at 50%. Employees who earn more than the plan covers would still need supplemental income benefits provided by STD or employer leave banks.
- PFML won’t relieve businesses of FMLA, or other statutory responsibilities. While CO PFML provides job protection for employees on leave, it does not replace FMLA. CO PFML would run concurrently with FMLA, and would need to be tracked separately. Furthermore, the eligibility and qualifications for CO PFML and FMLA are very different.
Next Steps for Colorado Businesses
This is a new process, expense, and responsibility for almost every private employer in Colorado. When you add this to the growing list of thinks HR needs to be focused on, such as FMLA, ADA, USERRA, or any of the 140+ state and local leaves across the country. Add in existing STD and LTD benefits, and there is a ton of coordination, documentation, and information to be responsible for. Paid Family Medical Leave doesn’t just add a new benefit or law – it is something that will require existing plans to integrate with, which adds additional layers of complexity.
Fortunately for HR there are solutions that can help consolidate all of these responsibilities in one place. Disability insurance carriers have been managing leaves for decades, including claim intake, medical certifications, rehabilitation, return-to-work strategies, mental health support, and even vocational retraining. Many have successfully integrated FMLA and ADA leaves, and some are adding Paid Family and Medical Leave to their portfolios, which allow clients to focus on their business, rather than getting bogged down in forms, medical certifications, and compliance issues.
Employee benefit advisors are a great place for employers to turn for help in untangling the complex web of administering employee leaves, and helping employers stay informed and current on critical compliance issues. Employers in Colorado will have some important milestones ahead in the next 2-3 years. The professionals that you have trusted for years are now able to answer many of the questions you have on Paid Family Medical Leave, and more.
When Will PFML Benefits Start in Colorado?
PFML benefits will be available to Colorado workers on January 1, 2024. Employees and employers will need to begin paying for the program a year earlier – on January 1, 2023. Employers will have the option of offering this through the State, or working with a private insurance carrier, presumably a carrier like their current disability insurance provider that can help manage multiple programs and leaves in one place.
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