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Christine P. Roberts
Mullen & Henzell L.L.P.
As of July 1, 2004, benefits first became available under California’s Family Temporary Disability Insurance Act, otherwise known as the Paid Family Leave (PFL) program. PFL provides a maximum of six weeks of partial wage benefits to eligible employees who take time off work to care for a seriously ill child, spouse, parent, or domestic partner, or to bond with a new child. Simply put, PFL makes family leaves of absence affordable for many employees (as many as 3 out of 4 workers) – per Department of Labor estimates – who formerly could not afford to forego their paycheck in order to meet family care needs.
Despite its name, PFL is not truly a “leave” program in that it does not guarantee employees the right to take a leave of absence from work. Rather, it provides compensation for lost wages suffered by employees who otherwise qualify for unpaid leaves of absence to care for an immediate family member under the Family and Medical Leave Act (FMLA), the California Family Rights Act (CFRA), California’s Pregnancy Disability Leave (PDL), or a discretionary employer policy, such as a self-funded disability leave program. The PFL program is funded by employee contributions through mandatory payroll tax withholdings, which began on January 1, 2004. The average amount withheld per year, per worker, is estimated to be $27. California’s Employment Development Department’s Disability Insurance Branch (EDD) is in charge of administering PFL benefits, although employers with voluntary, self-funded disability accounts will have to administer PFL benefits directly, or through a third-party administrator.
2. What Employers Are Covered?
PFL applies to all private-sector employers who participate in the California State Disability Insurance program (SDI), or who maintain voluntary, self-funded disability accounts. There is no exception for “small employers” such as applies under FMLA for employers with fewer than 50 employees.
3. What Employees Are Eligible?
Any employee of a covered employer, as defined above, is eligible to collect PFL benefits, regardless of length of employment, provided that he or she meets a minimum earnings threshold (approximately $300 in the “base period,” roughly equal to a calendar quarter). Part-time employees meeting these requirements are eligible.
4. What Leaves Of Absence Are Covered?
PFL benefits may be taken for the following reasons:
The definition of the term “serious health condition” is similar to that used in the California Family Rights Act. It includes an illness, injury, impairment, or physical or mental condition that involves inpatient care in a hospital, hospice, or residential health care facility, or continuing care or continuing supervision by a physician or medical practitioner.
Leave for bonding with a new child must occur during the first year after the birth or placement of the child. An employee is not eligible for PFL with respect to any day that another family member is “able and available” to provide care for the same period of time that the individual is providing the required care. Also, employees may not receive PFL benefits while receiving SDI, Unemployment Insurance or Workers’ Compensation benefits.
Employees cannot draw PFL during leaves for their own injuries or illnesses, although SDI benefits may be available.
5. How Employees Obtain PFL Benefits
Before an employee can receive PFL benefits, the employee must file a claim with the EDD, along with a certification form from a treating physician or medical practitioner that establishes that an immediate family member has a “serious health condition” (as defined above) that warrants the care of the employee. Employees seeking child bonding leave must provide evidence of the child’s birth, adoption, or placement for foster care. Employers who offer a voluntary, self-funded disability plan should develop their own claim forms based on the EDD model. In either case, where an employee takes leave to bond with a new child, PFL benefits are available only if the claim is filed within twelve months of the birth, adoption, or foster care placement of a child.
6. PFL Coverage And Benefits
If an employee satisfies the above requirements, the employee may receive a maximum of six weeks of PFL benefits within a 12-month period. Contrast this with the 12 weeks of unpaid leave under FMLA/CFRA, and four months under California PDL provisions. The 12-month period for PFL begins on the first day an employee submits a claim for benefits, and runs for 365 days from that date. Once the 365 days elapse, the employee’s allotted six weeks of benefits expire, regardless of whether the employee has exhausted all six weeks. Any claims submitted to the EDD after the 365 days will initiate a new 12-month period. Note that this counting method is different from that commonly used in FMLA policies, which generally count 365 days backwards from the date an employee initiates FMLA leave. The new PFL benefit mirrors the benefits available under SDI. The available PFL benefit is equal to 55% of an employee’s wages, up to a maximum of $728 per week. This maximum amount will increase in 2005 to $840 per week. The IRS has tentatively ruled that PFL benefits are taxable income, however the ruling is under appeal.
An employee may collect PFL benefits for six consecutive weeks or on an intermittent basis, but a seven-day waiting period applies before benefits begin. For example, if an employee is out on leave for four weeks to care for a spouse and requests PFL benefits for this time, the first week will serve as the seven-day waiting period. The employee will begin to receive PFL benefits the beginning of the second week through the fourth week. If five months later the employee requests another four-week leave to care for his or her spouse, the employee need not serve the seven-day waiting period again, and will receive benefits for the first three weeks of the leave of absence. However, if the second leave of absence were to care for a different family member than the spouse, a second one-week waiting period would apply, and PFL benefits would be available for the second through the fourth weeks. Alternatively, employees may serve the seven-day waiting period intermittently over a period of time, for example, where an employee takes one day off every other week to help a parent with chemotherapy treatment. Beginning the eighth day, the employee cares for the parent, the employee may begin receiving benefits.
Employers may require that an employee use up to two weeks of accrued but unused vacation prior to receiving PFL benefits. The first week of vacation may be applied to the requisite waiting period. Employees cannot be forced to use their paid sick leave during their PFL leave. Note, however, that under California “kin care” provisions, employees may voluntarily use up to half of their annual accrual of sick leave to care for an ill parent, child, spouse or domestic partner. In such cases, PFL will apply after paid kin care leave is exhausted. PFL benefits are reduced dollar-for-dollar by paid benefits such as vacation or sick leave, so no PFL would be available during the employee’s receipt of sick pay for “kin care” reasons. In order to coordinate availability of PFL benefits with paid leaves of absence, the EDD claim for PFL benefits requires employees to indicate whether or not they are receiving vacation or sick pay during their leave of absence.
7. Interaction of PFL and PDL
An employee who qualifies for a Pregnancy Disability Leave (PDL) is not automatically entitled to collect PFL benefits. What will usually happen is as follows: an employee who is disabled by pregnancy may be placed on PDL, which at the employer’s election may run concurrently with FMLA. (Family and medical leave under California’s Family Rights Act, by contrast, cannot run concurrently with PDL.) PFL will not be available for the employee’s own disabling condition during the pregnancy, but many employees on PDL will be eligible to collect SDI benefits. Once the employee has given birth, she will be eligible for a child bonding leave of absence under CFRA. So long as the employee is no longer receiving SDI benefits, she may apply for and receive up to six weeks of child bonding benefits under PFL any time within twelve months after the child’s birth. Also, if the employee served a waiting period on her claim for SDI benefits while pregnant, she does not have to serve the seven-day waiting period that usually applies to PFL benefits.
8. Employer Obligations
Employers should already be making proper withholdings for their employees’ PFL contributions, which began on January 1, 2004. As the PFL contributions are merely a new component to existing SDI withholding, employers are not required to submit any new reports or withholding forms. PFL does impose notification and posting requirements on employers, however. Specifically, employers must provide a PFL brochure (EDD Form DE 2511) to all new employees hired on or after January 1, 2004, and to all employees who miss work on or after July 1, 2004, due to pregnancy, non-occupational sickness or injury, or the need to provide care for any sick or injured family member, domestic partner or new child. Employers can obtain a copy of the brochure they need to distribute by visiting the EDD Web site www.edd.ca.gov/direp/pflpub.asp .
Employers must also post at the workplace a Notice to Employee about PFL benefits. The required notice (EDD Form 1857a) is also located at the EDD site indicated above, as are claim forms for employees.
As for employee handbooks, employers must carefully explain the one-week waiting period and the two-week mandatory use of vacation time (if imposed), and will want to address the interaction of PFL with protected leaves of absence, such as FMLA and PDL, and discretionary leaves of absence. Also, since the PFL payroll tax is collected as part of California State Disability Insurance (SDI) taxes, employers may want to modify their handbooks’ explanation of SDI benefits to include a mention of PFL benefits.
The PFL program does not itself require employers to re-hire employees returning from covered leaves of absence, but FMLA/CFRA and PDL requirements do guarantee reinstatement under most conditions. Employers should exercise caution before terminating any employee who has been collecting PFL while on a leave of absence, as a discrimination claim may exist even in the absence of protected leave rights under FMLA, CFRA and PDL.
9. Concluding Thoughts
California’s PFL program is currently the only paid family leave program in the United States, although as of last year at least 23 states other than California had introduced paid leave bills. If California’s program meets employees’ family care needs without imposing serious hardships to business owners, it is likely that many other states currently contemplating such measures will also adopt similar programs in the months and years to come.
The above information is a brief summary of legal developments that is provided for general guidance only. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation.
Since 1987, Precept has led middle market employers in strategically managing their benet and compensation programs for greater value. Precept’s process driven approach analyzes client objectives, market trends, cost factors and plan design strategies. A detailed annual review emphasizes long term planning and ensures every client’s programs remain aligned with their business goals. Our implementation services include customized enrollment materials, expertly planned employee meetings and ongoing benet communication support. By ensuring employees understand the value of their benet and compensation plans, Precept helps their clients maximize the return on their human capital management investment.
A perfect complement to Precept’s advisory services are ProView’s third party administrative services, which allow our clients to focus on strategy, not paperwork. In addition to plan administration, ProView helps employers achieve regulatory compliance and provides a variety to employee benet options, including online enrollment, employee call centers and billing reconciliation services