Are you ready for paid family leave?

Douglas P. Shuit

California has passed the nation's first paid family leave law, hailed as family-friendly by some and jeered as a "job killer" and a bureaucratic nightmare by others. Will other states follow?

Taking paid time away from work for baby bonding or to care for a sick parent might delight your pediatrician or preacher, but the very concept makes members of the business community crabby and colicky. How about calling it what it is, they grumble: job killer.

Legislators in California have given the nation its first paid family leave law, a controversial antidote to the mushrooming problem that workers face in juggling family and workplace responsibilities. If the idea spreads, top management and HR executives will be dealing with issues such as: Replacing more workers on temporary leave; higher administrative costs; privacy issues; threats of lawsuits, and increased future costs as the benefit is increased.

Under California's new law, 13 million workers will be eligible to receive half pay for six weeks for a variety of personal reasons, from tending to a newborn infant to moving a parent into a nursing home. Payments will come from a payroll tax, but employers are up in arms because they face significant new legal and administrative costs and must pay and train replacement workers. As for HR professionals in other states, the problem may not be yours--yet. The coalition of labor unions, family advocates, and others that worked hard in California for the family bill has efforts under way in nearly 30 other states.

You might call the new family-friendly leave plan--known as Family Temporary Disability Insurance--FMLA on steroids. Once implemented in 2004, the FTDI legislation promises to come on with a vengeance, critics say. Moreover, with a big win in California, the national coalition that supports paid leave for workers who take time away from their jobs to care for ill parents or family members might gain traction in other states.

Supporters of the measure--labor unions, advocates for children and seniors, church groups, and numerous other organizations--provided the political muscle needed to get the legislation through a divided legislature. They argue that paid family leave is necessary to keep pace with a changing workforce. The reality of the American family today is that both moms and dads commonly work, there are large numbers of single parents, and working-age adults are helping to care for ever-increasing numbers of older parents.

In signing the bill in September, Governor Gray Davis declared, "Californians should never have to make the choice between being good workers and being good parents. This bill will make it easier for Californians to help their loved ones through a health crisis without going broke in the process."

The bill was enacted over the opposition of the California Chamber of Commerce, the California Manufacturers and Technology Association, and other business groups that portrayed the family leave legislation as a "job killer" because it will create an even more inhospitable business climate, which is often blamed for the flight of manufacturing jobs out of the state. California business leaders predict the family leave program will become a full-employment act for lawyers and a major headache for HR professionals. They contend that it will multiply the legal problems they are already experiencing under the federal FMLA. They also fear that it will place a tremendous burden on employers with fewer than 50 employees, which have been exempted from FMLA but now are included in the California program.

Workers have already shown that they are willing to take time off without pay under FMLA, and it is feared that the added incentive of replacing 55 percent of their pay will open the floodgates. "This bill will cause a significant problem for employers," says Gino DiCaro, spokesman for the California Manufacturers and Technology Association. "Absenteeism already is one of the larger costs a manufacturer can incur. It's a certainty that a large portion of the workforce will take advantage of it, especially when they are paying for it."

The law builds on FMLA in a number of significant ways. FMLA provides for 12 weeks of unpaid leave, and it's up to the worker to cobble together enough disability insurance, when applicable, vacation, sick time, and savings to get by. California's FTDI will make up more than half of a worker's wages for six weeks. The payments will be free of taxes. FMLA limits coverage to businesses with 50 or more employees; FTDI includes businesses of all sizes. Eligibility for FMLA requires a year on the job and 1,250 hours in the previous 12 months; eligibility for FTDI begins immediately upon employment, after a seven-day waiting period.

Workers are expected to take advantage of the new program in far greater numbers. Although 35 million Americans have taken leaves under FMLA, one federal study estimated that 20 percent of those eligible for leave did not take it because they couldn't afford losing a paycheck.

Many of those who have taken FMLA leave were forced to turn to public assistance to make ends meet. Because such large numbers of FMLA leave-takers turn to public assistance, California could save as much as $25 million in reduced welfare payments, supporters say. "All too often, people who take unpaid leave end up suffering unbelievable economic hardships. That can include going on public assistance, taking out second and third mortgages, and bankruptcy," says Jodi Grant, director of work and family programs for the National Partnership for Women and Families.

Still, the program will cost $78 million in the first year, rising to $117 million in the second. The money will come from the disability fund financed by a new payroll tax. About 13 million workers--roughly one-third of the state's population--who are now paying disability insurance, will see an increase in their DI payments. But countless millions more, represented by their children, parents, and family members, will be beneficiaries of the new law.

The program will be administered by the state Employment Development Department, which is in the process of drafting regulations in anticipation of the program's 2004 start-up.

This is how FTDI works. Beginning January 1, 2004, all employees paying into the state disability insurance fund will pay an average of $27 a year in additional payroll deductions into the Family Temporary Disability Fund. Workers may begin withdrawing money from the fund six months later, beginning July 1, 2004. Payments will range from $50 to $728 a week, indexed to increases in the average annual wage. Contributions into the fund will be paid 100 percent by employees, which supporters say minimizes the cost to employers.

Eligibility will essentially overlap FMLA. But in a key departure, once the program gets going, workers will be eligible for leave immediately, exempt from the 12-month qualifying period required under the federal program. Just like FMLA, the California program provides time off for new parents and also allows workers to take time off to care for a sick or injured family member or domestic partner.

Perhaps the most troublesome aspect of the new law to business leaders is the loss of the FMLA exemption for businesses with fewer than 50 employees. These smaller firms, which have no experience dealing with the FMLA, will face significant new costs in complying with the California law, critics say. They are expected to find it more costly to replace and train workers to fill the jobs of absent workers, and additional legal and paperwork problems may have them running for the aspirin.

Attorney Michael Lotito, a partner in the law firm Jackson Lewis in San Francisco, already has held one seminar for HR executives on California's law. Three hundred anxious benefits professionals signed up. "Just thinking about it is a nightmare," Lotito says. "This is so unbelievably complex that supporters who say it isn't going to cost employers anything are crazy."

He predicts that many firms will outsource administration of the program to specialty firms. "There is going to be a real issue in setting up a human resource structure," he says. "The people who are going to benefit the most are temporary agencies, because temps are going to have to be hired to fill vacancies."

One of the knotty problems to be worked out involves job protection. Under FMLA, workers taking unpaid leave are promised that they can return to the job they left or one equal to it. The California program contains the same job protections for firms of 50 or more, but offers no job protection for workers at smaller firms. Plaintiffs' lawyers may challenge that, arguing that there is an implied promise that an employee granted leave will have a job when he or she gets back. Consider the touchy issue of the employer that holds a job open for one employee but not another. Would filling a job left vacant by a person taking family leave violate the law against unlawful retaliation, since a legal right is being exercised?

And HR executives say privacy issues may create another legal land mine. Will workers have to fill out a detailed form listing family members and domestic partners in the event that they will have to provide care for them?

A provision of California's law says workers cannot take family leave to care for a sick family member if another member of the family is available at the same time. Already some wonder how thoroughly an employer or state worker can investigate the availability of other family members. The law setting up paid family leave makes it a criminal offense to file a false claim, but to what lengths will a company or the state go to check out potential fraudulent claims? Under the current unemployment insurance program, employers can contest claims. What happens under the new system if an employer learns something about a possible fraudulent claim? Can it be contested?

"There is no question this is a full-employment act for labor employment lawyers," Lotito says. "This will give plaintiffs' lawyers another opportunity to create additional causes of action. The cost to employers is very, very significant."

So far, many HR professionals have adopted a wait-and-see approach. Already faced with problems stemming from the implementing regulations issued on FMLA by the U.S. Department of Labor, HR professionals shudder to think about additional problems created by California's version of family leave. Eleven different regulations implementing FMLA have been challenged in 58 suits filed in federal courts, according to a study presented to Congress in April by the Kansas City law firm Spencer Fane Britt & Browne.

Kenneth A. Buback, vice president of human resources for Sutter Health, which operates a chain of hospitals in Northern California, testified before Congress on behalf of the Society for Human Resource Management about "paperwork inflation" resulting from FMLA implementing regulations put out by the Department of Labor. He complained that the Department of Labor's interpretations of FMLA were vague and contradictory, and created a burden on his Sacramento-based hospital chain that was driving up costs. He said an increasing number of lawsuits challenging FMLA regulations are expected.

Buback praises the intent of California's FTDI. "I think it's a good piece of legislation in that it is family friendly," he says. "Overall, we need to be more responsive to work/family issues and bring them more into balance."

But he wants to withhold judgment until he has seen how the state implements the California program. "It's so new, and because it won't take effect until 2004, we are still waiting to see how this will play out," Buback says. He is troubled by FMLA's track record. "It would be great to fix what we have."

Allan Zaremberg, president of the California Chamber of Commerce, led the unsuccessful fight to defeat the bill, which was authored by state senator Sheila Kuehl. Opponents were able to get some amendments. Originally, the bill was to have provided 12 weeks of paid leave. Kuehl agreed to reduce that number to six. Employees and employers originally were going to make equal contributions to the fund. Employees now will make 100 percent of the contributions. Those amendments softened the blow, but the legislation "is still horrible for small business," Zaremberg says.

Paperwork is another concern. So are lawsuits. "Small business just can't afford litigation," Zaremberg continues.

In any case, there are mountains of work ahead. HR executives will have to review policies on leave. Supervisors will have to be educated. Employees will have to be notified of their new rights. Regulations formulated by the state Employment Development Department will have to be tracked.

Other countries even more generous

As new and burdensome as it may seem, paid family leave is a core benefit for workers in most of the rest of the world. The United States is one of only three industrialized nations that do not provide paid family leave. Employees in many other countries work under family policies that are even more liberal than those being implemented in California.

In Norway, parents are entitled to 42 weeks of leave at 100 percent pay or 52 weeks at 80 percent pay. Norway places such great emphasis on involving fathers in the care of their children that penalties are imposed if they don't take leave. The California law mirrors a program in Canada. Australia, which is also wrestling with paid leave, found in a study of its trading partners that New Zealand is implementing a program funded by social security--12 weeks of paid leave for both women and men. China, Korea, Malaysia, Indonesia, Hong Kong, and Saudi Arabia require employers to pay for maternity leave. In Thailand, the employer pays frill wages for 45 days, and then social security kicks in to pay 50 percent.

In the United States, a question on many minds is whether paid family leave will spread to other states. Supporters of paid leave have introduced proposals in 28 states. So far, California is the only one to have passed a paid-leave program. And even then, voting broke along party lines, with majority-party Democrats providing all the aye votes. In the state senate, the bill passed with a bare 21-vote majority, usually a sign that some party members begged to stay off the roll call.

Even so, passage of the law was a big win for labor, which led the fight in California and is mounting campaigns in other states. The victory came at a time when employers have been scaling back health insurance, pensions, and other benefits. Some see the action by the California legislature as evidence that workers may increasingly be looking to government, rather than employers, to shore up benefits.

"This bucks the trend. The citizens of California took it into their own hands because they saw they were not getting this out of their own companies," says Karen Nussbaum, assistant to AFL-CIO president John Sweeney and longtime advocate for paid family leave. She believes that passage of paid family leave will have "enormous consequences" for the rest of the nation.

"It is the first big victory on paid leave since the family leave was passed by Congress in 1993," Nussbaum says. "People trying to balance work and family life are just stressed to their limits. We see it as a fundamental core issue."

That California proved to be fertile ground for advocates of paid family leave should not be surprising. The state legislature over the years has been out front in passing tough air-pollution standards, legislating overtime based on an 8-hour workday rather than a 40-hour week, and creating worker-friendly ergonomics standards to deal with repetitive-stress injuries.

But other states have often been reluctant to follow California's lead. The state of Washington considered a paid-leave program, but backed away. Marilyn Watkins, economic security and tax policies director of Seattle-based Economic Opportunity Institute, predicts the issue will catch on and ultimately spread beyond California. "Our polling found good support across political lines, gender lines, regional lines. There is very strong public support for paid leave," Watkins says.

As in California, business lobbied heavily against it, and there was a divided legislature. The bill died.

Deanna Gelak, executive director of the National FMLA Technical Corrections Coalition in Springfield, Virginia, says she's concerned that California is sending the wrong message to employers. The California law raises "a host of privacy concerns, not to mention the monstrous bureaucracy that will be required to track this leave."

Reports that paid leave "is spreading like wildfire are greatly overrated," she adds. "The California approach is extremely controversial and unique."

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RELATED ARTICLE: How the Paid Family Leave Law Works

Majority-party Democrats, pushed by labor passed a paid family leave program through a divided California legislature. Business groups put up a strong fight, primarily over cost, but lost. One problem: they were battling a motherhood and apple-pie issue. The intent of the legislature was to provide incentives to family members to take up to six weeks off at more than half pay to care for newborn or adoptive children, or provide care to ill parents or other relatives. Here, in a nutshell, are key components of the controversial new law.

Funding: Mandatory payroll deductions for the Family Temporary Disability Insurance program will begin January 1, 2004; benefits begin July 1, 2004.

Eligibility: About 13 million workers now paying state disability insurance will be eligible to receive up to 55 percent of their pay for six weeks. Payments will range from S50 to S728 a week and not be taxed.

Vesting: Workers become eligible immediately upon taking a job, after a seven-day waiting period. Employers can require employees to use up to two weeks of vacation time before going on paid leave.

Coverage: Leave allowances will track the federal FMLA, providing time off for the birth, adoption, or foster-care placement of a child, and for the care of a seriously ill child, spouse, parent, or domestic partner.

Administration: Processing claims and administering the leave program are the responsibility of the state Employment Development Department, rather than employers.

Job Protection: Employees now covered by FMLA (firms employing 50 or more workers) receive the same job-protection guarantees they now receive with unpaid leave. Employers with fewer than 50 employees will not be required to hold jobs open for workers on leave.

Douglas P. Shuit is a freelance writer in Long Beach, California. To comment, e-mail editors@workforce.com.

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