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And Employer Challenges Continue to Mount…
Employers have long grappled with balancing compliance concerns, benefit administration costs and attracting and retaining a workforce in competitive environments. As additional states pass legislation requiring paid leave or disability benefits, and discussion of federally mandated paid family leave continues, employers are now forced to also navigate inconsistencies in the regulations.
While the Family and Medical Leave Act (FMLA), state paid family, sick and disability leave mandates all have separate requirements, they usually overlap with each other and with employer benefits such as short- and long-term disability, paid time off (PTO), or other paid sick leave benefits. For example, an employee who takes leave to give birth to their child could be eligible for FMLA, paid family leave, and/or paid disability through a state-mandated program or an employer-provided disability plan.
How does an employer ensure it is in compliance, minimize costs associated with these programs, and support employees as they experience planned and unplanned events such as birth of a child or a cancer diagnosis?
- Define your goals and priorities. Depending on location, industry, type of employer, and employer philosophy, goals differ. Defining your organizations goals with regard to people strategy will provide a framework as you determine which benefits you want to offer versus those that are required. An employer driven entirely by compliance and avoiding risk may choose to provide only those leaves or benefits that are mandated. Another employer may be interested in providing a more rich benefit than is required in order to attract and retain top talent in jobs where competition for talent is greater. An employer with locations in multiple states with differing regulations may choose to outsource administration of their programs in order to streamline benefits, realize administrative efficiencies and reduce risk of inconsistent administration.
- Understand the leave and benefit programs that are mandated federally and in each state that you operate.
The FMLA entitles eligible employees of covered employers to take up to 12 weeks of unpaid, job-protected leave in a 12 month period to care for themselves or a family member for specified reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave. Additional FMLA leave may be available related to military deployment or to care for an ill or injured military service member.
There are currently no federal laws that require private employers to provide paid sick time or disability benefits for off the job injuries or illness, or to provide pay for family medical leave as outlined above. Executive Order 13706 does require certain federal contractors to provide employees with seven paid sick days annually.
Family Medical Leave
Several states, including California, Connecticut, D.C., Hawaii, Maine, Minnesota, New Jersey, Oregon, Rhode Island, Vermont, Washington and Wisconsin, have state Family Medical Leave laws that provide additional coverage that may allow additional time for leave, or expand the definition of covered employees.
Four states (California, Rhode Island, New Jersey and New York) and Washington D.C. now require differing levels of paid family leave. The states of Washington and Massachusetts have enacted legislation with benefits beginning 1/1/2020 and 1/1/2021 respectively. Most of these state programs are funded through employee and/or employer payroll taxes.
Paid Disability Benefits
State mandated or voluntary employer provided disability benefits provide income replacement for employees who give birth to a child, become ill or injured off the job and are unable to work. These typically require an elimination period, or time between when the employee is first off work and when benefits are paid and a maximum benefit period of three to six months, though they can provide benefits for as long as one year.
Employers who provide disability benefits voluntary to their employees can do as a contributory or non-contributory plan, on either a fully insured basis through a disability carrier or on a self-insured basis administered internally or through a third-party.
Five states current have mandated state disability programs: , , , and . Some of these programs are funded through employee and employer payroll deductions and administered through a state disability program, while others, such as Hawaii require that employers either purchase a short-term disability policy through an authorized insurance carrier or to self-insure the benefit. The eligibility, elimination periods and benefits payments vary in each state.
Paid Sick Leave Benefits
In addition to voluntary employer paid programs, many states, cities and counties have mandated that employers must provide paid time off from work that can be used for an employee’s own health or safety issues and sometimes to care for an employee’s immediate family member. Employees typically earn one hour of sick leave per a set number of hours worked, and are able to use the sick leave for short term, typically less than a week, or acute needs. The amount an employee can earn, and use at one time, and the purposes for which they can be used varies widely from one regulation to the next.
For example, a small business in Washington D.C. that employs less than 24 employees is required to provide employees with 1 hour for every 87 hours worked, up to three days. While New Jersey now requires that employees, with a few exceptions such as per diem hospital health care workers, accrue one hour of paid sick time per 30 hours worked. The New Jersey law superseded all existing local paid sick laws when it went into effect last October.
- Define your leave and disability benefit programs and ensure your employee handbook is reflecting of your policies. For employers operating at a single worksite, or in a single state, this can be easier. For employers operating in multiple states, establishing policies that comply with all applicable regulations can be more complex. An employer should determine if they will have different benefits for employees in different locations/states, or if they will provide a benefit to all employees that is as rich as or better than the most generous state regulation they are required to comply with. For example, if an employer has employees in New York and in Kentucky, they can provide the mandated New York Paid Family Leave and Paid Disability Benefit to just their New York employees, or they can expand those policies and provide something equal to their employees in Kentucky. Employers can elect to have a separate employee handbook for each state or location that reflects the regulations and benefits appropriate for that location, or they can create separate policies within the same handbook. Having a well-defined policy lets employees know what to expect and to which benefits they are entitled. It also provides written evidence that the employers policy complies with regulations.
- Administer your leave programs in accordance with your policy, in a consistent, non-discriminatory manner. Having a well-defined policy that complies with the regulations is a good first step. The importance comes in having a well-defined process that ensures you are complying with your own policy and ultimately the regulations. Stating that you comply with FMLA will not protect an employer who only sometimes requests medical certifications and does not have a standard process for providing rights and responsibilities notices with the prescribed amount of time. Further, it is important that the policy is administered in a non-discriminatory manner. For example, the Equal Employment Opportunity Commission sued Estee Lauder in 2017 claiming their parental leave policies were discriminatory. The parental leave benefit provided new mothers six weeks of paid parental leave for child bonding while new fathers only received two weeks of paid leave. The
and Estee Lauder’s agreement to treat both men and women equally with regard to parental leave.
It is crucial that employers understand the rules and regulations impacting their leave and disability benefits, and that they proactively develop policies and processes that align with their overall people strategy and minimize compliance risk. Creating a quick reference chart by location and common leave events can be helpful for both employees and human resources staff administering the programs and understanding which situations apply for each level of benefit. Please consult your MMA client team to outline the mandated leave and disability regulations that you must comply with at each of your locations and to develop a strategy that balances compliance concerns, benefit administration costs and the need to attract and retain a workforce in today’s competitive environments.
We are providing this information to you in our capacity as consultants with knowledge and experience in the insurance industry and not as legal or tax advice. The issues addressed may have legal or tax implications to you, and we recommend you speak with your legal counsel and/or tax advisor before choosing a course of action based on any of the information contained herein. Changes to factual circumstances or to any rules or other guidance relied upon may affect the accuracy of the information provided. We are not obligated to provide updates on the information presented herein. © 2019 Marsh & McLennan Agency LLC. All Rights Reserved.