Editor’s note: This article is part of an ongoing series intended to help employers prepare for the start of employee benefits under Colorado’s FAMLI program. Look for additional articles in the coming weeks.
Beginning January 1, 2024, eligible Colorado employees will begin to receive benefits through the Family and Medical Leave Insurance Program (FAMLI) while they are on leave due to a qualifying event. The change in the status quo has some employers evaluating whether the FAMLI program can fully replace existing income-replacement benefits. In this article, we focus on employer-sponsored short-term disability (STD) plans and paid parental leave, but similar principles can apply to other types of paid leave and income-replacement benefits.
FAMLI benefits do not fully replace an employee’s wages, nor do they necessarily reflect an employee’s current wages. FAMLI benefits are calculated on a three-tier scale based on an employee’s average weekly wages in the five calendar quarters prior to the start of leave.
We can look at this benefits schedule more broadly by annualizing the average weekly earnings: (These annualized salaries are calculated using the Colorado average weekly wage and the FAMLI sliding benefits scale. These figures are provided as contextual information only, not an actual estimate of available benefits.)
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Employees who earn less than approximately $37,000 annually would receive benefits at 90% of their normal weekly wages.
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Employees who earn between approximately $37,000 and $114,000 annually would receive benefits at 50% of their average weekly wage in FAMLI benefits.
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Employees who earn more than approximately $114,000 annually would receive benefits capped at $1,100 per week.
The gap between FAMLI benefits and an employee’s normal wages is one place where other income-replacement benefits from an employer may still provide value. Another is in circumstances where either the employee or their reason for leave does not qualify for FAMLI benefits.
Short-Term Disability Plans
STD programs are primarily focused on the employee's own medical condition, while FAMLI has a much broader set of qualifying events. STD plans may fall short of providing income replacement for caregiver leave, leave after a birth or adoption, and safety leave, three of the qualifying events under FAMLI.
Just like FAMLI, most employer-sponsored short-term disability policies already provide a partial income-replacement benefit. If an organization has an STD plan design very similar to FAMLI benefits, employees could see little or no change if the STD plan is terminated in favor of FAMLI. On the other hand, STD plans have their own eligibility and wait period criteria, so an STD plan could be used to fill a gap for employees who do not yet qualify for FAMLI benefits.
To understand how your existing STD plan will interact with the FAMLI program, speak with your benefits broker or vendor to find out the following:
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Is the benefit amount or duration offset by FAMLI?
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What FAMLI qualifying events are and are not covered by the STD plan?
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Are there qualifying events covered by the STD plan that are not covered under FAMLI? In other words, could dropping the STD plan inadvertently create a gap in benefits that wasn’t there before?
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How does the benefit schedule compare to that of FAMLI?
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How does the eligibility schedule compare to that of FAMLI?
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How are rates for coverage impacted by FAMLI, if at all?
Offering paid parental leave has traditionally been a significant financial burden for employers. Unlike STD benefits, which are pre-funded through plan premiums, paid parental leave is often as simple as continuing to pay the employee’s salary during leave. One of the advantages to employers of the FAMLI program is that benefits don’t draw from the payroll budget, offering greater flexibility to address staffing needs. In this way, FAMLI may make paid parental leave more affordable for employers to offer in 2024 and beyond.
Paid parental leave programs provide income replacement in a narrow set of circumstances and won’t apply to all employee leaves. However, consider that many medical leaves are shorter continuous periods or periods of intermittent leave, while parental leave is often 8-12 weeks, especially for a birthing parent. Employees facing such an extended period of reduced income may be particularly appreciative of a paid parental leave benefit that fills in that gap. Thus, employers may wish to provide additional income-replacement benefits for employees during these specific qualifying events.
A significant advantage of paid parental leave is that the parameters are almost entirely up to the employer. Eligibility rules, benefit amounts and durations, and request processes are all decided by the organization.
Here are a few things to consider when planning or revising your paid parental leave benefits:
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Who will be eligible, and when? Should this eligibility align with FAMLI, or should it capture a broader/narrower group?
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How long and when is the benefit period (e.g., the six-week benefit must be used within 12 months of the qualifying event)?
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How often can the benefit be used? Can it be approved without approval for FAMLI/Family and Medical Leave Act (FMLA) leave?
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For additional parameters for a parental leave program, see our whitepaper on the subject.
Administrative Considerations
The majority of the FAMLI program’s administrative burden will fall to the plan itself. When it comes to the interaction of FAMLI benefits and your existing benefits programs, there are some administrative tasks that organizations will need to prepare for, as well.
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While receiving FAMLI benefits, an employee’s income must not exceed 100% of their normal weekly wages. This includes all forms of income benefits like paid parental leave, STD, and even sick and vacation leave benefits. It is the employer’s obligation to ensure that this requirement is met, and to recoup any overpayment. The template consent form above also serves as notice to the employee of this requirement and possible future deductions if an overpayment occurs.
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To ensure timely information from FAMLI about pending and active leave requests, including the amount of anticipated benefits, employers can designate a point of contact within the My FAMLI+ Employer portal. This feature is expected to roll out in the portal in early November.
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In circumstances where the amount or duration of an employee’s STD coverage is offset by FAMLI leave, they must be provided with a written notice. This notice may be available from the STD plan provider or your third-party administrator.
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Employers cannot require employees to use accrued paid leave (e.g., PTO, vacation leave, or sick leave) to “top off” their wages while on FAMLI leave. However, employers can permit the use of accrued paid leave at the employee’s request. The employee’s consent must be provided in writing. A whitepaper with a sample template consent form is available from Employer’s Council for members to download.
Deciding whether to let the FAMLI program fully replace your existing short-term disability and paid parental leave programs requires careful consideration. There is no one-size-fits-all option, so other income replacement programs may still have their place in an employer’s benefits package when FAMLI benefits become available. Where both FAMLI and these other benefits apply, the financial burden on the employer is reduced by the amount of FAMLI benefits, making such benefits more cost-effective.
Ultimately, employers must assess their employee demographics, current benefits packages, and financial implications to make an informed decision that aligns with their business objectives and commitment to supporting employees during significant life events. Consulting and Enterprise members can contact Employers Council to discuss their options with an HR consultant.