Voluntary Paid Leave: A Different Way – Employee Benefits and Compensation

COVID-19 has forced paid time off into public conversation. Federal programs like the Families First Coronavirus Response Act (FFCRA) mandated paid vacation periods — both short and long — for eligible employees and offset business expenses with a payroll tax credit. The FFCRA has been widely perceived as a success: both in stemming the pandemic and in keeping the heads of many employees in need of sick leave above water.

Since then, many states have debated implementing permanent paid leave programs. These programs have always been mandatory; meaning that eligible employers were required to provide paid time off to eligible employees. New Hampshire — in an attempt to balance the benefits of paid vacation programs like the FFCRA with our state’s more laissez-faire policy instincts — has adopted a voluntary paid vacation program for businesses and individuals. Here are the basic mechanics.

The Program: The program, the Granite State Paid Family Leave Plan, uses a combination of insurance, known as Family Medical Leave Insurance (FMLI) and tax credits for participating companies. Using state employees as a risk pool (there are approximately 10,000), MetLife will provide FMLI as a state provider. Employers and/or individuals will then pay insurance premiums for necessary family or medical leave while an individual is insured.

At the heart of the FMLI program is a business tax credit designed to encourage business participation and advance the state’s policy of providing a market for “bargain-priced wage replacement benefits.” The salary replacement and tax system is capped at the amount of the “Maximum Taxable Social Security Salary” as it may be modified from time to time.

Participating companies will receive a business tax credit (“BET”) of up to 50% of the premiums they pay under the program. In particular, although employers may choose to purchase NH FMLI from insurance companies other than MetLife, they will not be eligible for credit through other providers. To qualify for the credit, businesses must submit a BPT credit (Form DP-160) to the NH Department of Tax Administration to claim the tax credit.

Type of leave: FMLI covers any leave resulting from childbirth (within the last 12 months), placement of a child with the employee for adoption or placement (within the last 12 months), serious illness of a family member, or any other qualification requirements arising from overseas deployment with the armed forces, or to care for a seriously injured or ill service member, as permitted by federal law on family and medical leave.

Program Benefits: The FMLI program provides a minimum of six weeks of wage replacement at 60% of an employee’s average weekly wage. Salary replacement is capped, however, at the Social Security salary cap, which for 2022 is $147,000.

Duration: The duration of paid leave depends on the plan sponsor. Individuals and government employees have a statutory maximum of six weeks of paid leave. Employers opting for a group plan, however, have the choice between a six-week paid vacation plan or a 12-week paid vacation plan. In either situation, the leave can be taken continuously or intermittently with a minimum of 4-hour blocks. Paid vacations under the FMLI program must also run concurrently with other vacations. For example, an employee using six weeks of paid leave will simultaneously exhaust half of the leave provided by the FMLA, which provides 12 weeks of leave for eligible employees.

Eligibility: All Granite State businesses, regardless of size, can participate in the new voluntary paid time off program. This is an FMLA waiver, which applies to businesses with only 50 or more employees.

Individuals can also participate whether or not their company participates in the New Hampshire voluntary program, as long as their company does not offer an equivalent benefit. A caveat to the individual option (or companies that participate with less than 50 employees) is that the employee’s leave, although paid, will not have job protection attached. This means that an employee who returns from leave will not be guaranteed to be reinstated in their former position or in an equivalent position. Job-protected leave only applies if the company has 50 or more employees and is considered under the same conditions as the FMLA. Additionally, continued medical coverage is only guaranteed when a company with 50 or more employees joins the program.

Payment of Premiums and Costs: To participate in the program, employers and individuals will enter into a contract with MetLife (or their selected provider). Businesses with 50 or more employees must allow insurance premium payments to be deducted from payroll, even if they are not participating in the program. Everyone (including small businesses and individuals) has the option to authorize payroll deductions or pay premiums directly to MetLife. Premiums for individual coverage will not exceed $5 per subscriber per week. Individual programs will have a mandatory waiting period of 7 months and an annual open enrollment period of 60 days.

Interestingly, unlike other paid leave programs, employers are not required to pay 100% of the premiums. Employers and employees can split the cost at any ratio. This is an attractive feature for small businesses that want to offer paid time off but cannot afford the full cost of the premium. For example, an employer and employee could each pay 50% of the premiums, or they could split the cost at 70%, 30%. The cost of the employee’s share can be deducted directly from their payroll.

Registration: The 60-day registration period for employers begins December 1. The 60-day registration period for individuals begins January 1, 2023.

So what’s next and what should businesses do now? With the exception of individual plans, one of the biggest unknowns is the cost of premiums. Employers will need to investigate these costs and decide whether or not to offer coverage under the program. If coverage is provided, it will require new policies and coordination with other benefit programs, such as the PTO. Whether or not they participate in the FMLI program, employers with 50 or more employees should be prepared to make payroll deductions for employees who participate individually.

This program is in its infancy and there are still important details to be clarified, such as what qualifies as “average weekly earnings”. The program nevertheless offers a unique option for companies looking to improve employee retention and provide an advantage found in neighboring competitive markets. If your company has questions about the program or developing a policy to complement it, we encourage you to work with a qualified labor and employment attorney.

Originally posted by seacoastonline.com.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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