Complex, new state paid leave laws add new burdens for employers

Employers are seeing increased complexity around paid family and medical leave (PFML) plans. A number of states have passed new laws in this area, with about 10 states requiring some sort of public PFML offering. With the growing attention on this issue, many companies are increasing their offerings in an effort to attract and retain workers.

A recent webinar by the Disability Management Employer Coalition (DMEC) outlined emerging issues and questions around PFML. The Tools and Tactics Webinar, held on February 23 and sponsored by The Standard, featured Jessica Bolar, senior product manager for PFML and absence management at The Standard, and Lincoln Dirks, JD, The Standard’s national practice leader for absence management.

PFML comes into focus for employers

Bolar started the discussion by noting a recent poll by The Standard found that 42% of employer representatives felt very well prepared to administer their company’s PFML programs, and 51% felt somewhat prepared—a sign that the majority of employer administrators were at least acquainted with the issues of PFML.

In addition, Bolar pointed to surveys from her company that found companies had a wide range of strategies for addressing new PFML laws enacted in their states. These ranged from “seek outside consultation” (42%) to “watch what our peer companies do” (26%). Bolar noted that all strategies fell within those two approaches in popularity. “There’s really no outlier, or one right answer,” she said. “Ultimately, you’re going to have to make that right decision for your organization based on your company’s goals and strategy.”

Related: Employee leave requests are expected to increase from 41% to 60%

The presentation noted that other programs such as short-term and long-term disability programs (STDs and LTDs) have traditionally only provided limited coverage for medical issues, and were only available to between 43% and 39% of private workers. “This is leaving over half of private industry workers without access to paid time off to care for their own medical needs,” Bolar said.

The limitations of paid medical leave options were made even more clear by the COVID pandemic, the research found. “Employees were overwhelmingly faced with evaluating their work/life balance,” Bolar said. “Employees are prioritizing benefits that fit their professional AND personal goals.” She added that although PFML is a bit of a “hot potato” right now, employers should see it as one element of a larger, holistic strategy to meet the needs and expectations of their workers. “It’s really just a part of your benefit ecosystem,” she said.

Evaluating and integrating PFML plans

Dirks said that PFML is one of many benefit areas that is considered integrated—that is, having interrelated plans, policies, processes, systems, or data across programs.

The most frequently integrated benefits, according to data from The Standard, are group short-term disability (87%), health or medical (81%), sick leave (70%), vacation leave (59%), and group long-term disability (57%). Family medical leave was listed as an integrated benefit by 54% of respondents, followed by paid parental leave (52%), and paid family care leave (49%).

The research also showed some significant upsides to integration of benefits. “We saw large increases across the board in employee satisfaction, in employee engagement, and return-to-work rates,” Dirk noted. “And then corresponding decreases in overall absenteeism, and cost reductions in disability and workers compensation plans.”

Related: Outdated worker leave practices may be costing employers money

As states experiment more with PFML programs, Dirk said, it may be time to take a step back and revisit employer paid-time-off (PTO) programs—looking for areas that might conflict with state laws, and even making changes in PTO programs if state programs can pick up the slack.

“Do you even need to maintain your PTO program at the same levels you had prior, or do you need to think about changes or reductions in your PTO?” he said, adding that PFML is considered the primary payer in many states, which may result in other benefit programs such as STD plans paying out less than in the past.

The differences between PFML and STD, LTD, or other types of leave program need to be carefully considered, Dirk said. As states roll out PFML programs, employers will need to juggle the different requirements around length of benefits, conditions of benefits, etc.

In addition, coverage between state programs and company programs could leave some employees with a gap in their income, Bolar noted. For example, a state’s PFML benefit might end at one point, and a company’s LTD plan may require a waiting period before beginning to pay out. “In our study, 44% reported a gap for all classes of employees,” she said. “With gaps a likelihood, it’s important to study who that gap applies to, and how, if at all, you can address that gap.” If an employer’s programs are not able to cover the gap, that needs to be communicated clearly to employees.

Other PFML integration issues could involve equity issues, coordinating with other leave policies, and differences across states and/or classes of employees, for larger companies.

Whether to use a state or private PFML plan

With a number of states now requiring PFML plans, or likely to in the future, employers may have two options to consider: whether to use the state plan, or a compliant private plan. The presentation outlined the differences between the two approaches. For example, with state plans, employers pay the state for the cost of the program, and claim administration and payments are managed by the state. With private plans, costs are paid to a third party. Private plans, like health insurance benefits, can be self-funded or fully-funded by an insurance provider.

The state-mandated laws around PFML require that private plans must deliver at least the same level of benefits as the state plan, and private plans must not cost the employee more what they would pay under a state plan. Adding to the complexity, some states do not allow private plans, and all states that offer PFML plans have unique regulations around the benefit.

It all adds up to pressure on employers to understand a complex system that may be required if they have employees in states that mandate a PFML public plan. Dirk noted that the research his company has done shows that most companies say they need more information on comparing state and private plans (62%). In addition, most say they also would like to know more about administration practices of private plans (60%), costs of state vs. private carrier plans (57%), and state claims administration practices (56%).

There are plusses and minuses to either approach, Dirk added. However, The Standard’s research did find that a private plan approach gave employers more resources and a streamlined administrative approach. “The state programs, we found, leave a lot to be desired and are sort of one-size-fits-all. Some may not be able to provide all the information that you need,” he said. “A private carrier can go through and tailor [the program] and work with you to get the information exactly as you need it.”