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Colorado FAMLI Paid Leave Update – Employee Benefits & Compensation


COLORADO FAMILY, MEDICAL AND SAFE LEAVE LAW REQUIRES EMPLOYER
ACTION BY BEFORE JAN. 1, 2023

Brownstein has previously previewed the upcoming drastic change
in Colorado paid leave law under the Family and Medical Leave
Insurance program (FAMLI) (“Colorado Paid Leave: Late-Breaking HFWA 2022
Updates and FAMLI Preview”).
This update provides a
detailed breakdown of what is known at present as well as strategic
considerations and open questions surrounding this new law.
Importantly, the regulations implementing FAMLI are being developed
and promulgated on an ongoing basis, such that it is expected there
will be continued developments on these issues. In short, most
Colorado employers and workers will be subject to the following
changes:

  • Effective Jan. 1, 2023, most Colorado employers must commence
    payroll deductions for FAMLI, and

  • Effective Jan. 1, 2024, unless an employer affirmatively opts
    out (by standing up its own fully -insured, state-approved paid
    leave program), most Colorado employees will be eligible to take
    paid sick and safe leave of up to $1,100 per week for up to ~12
    weeks.

FAMLI BACKGROUND

In November 2020, Colorado voters approved a mandatory,
state-administered paid family and medical leave insurance program,
making it the 11th state to do so. At the time of its passage, the
new law’s gradual implementation in 2023 and 2024 likely seemed
far away to Colorado employers, but the time has come for all
Colorado employers to analyze their coverage and choices under the
law, and prepare to initiate payroll deductions, even if a
private employer plans to apply for an exemption to “opt
out” from FAMLI.

OVERVIEW OF PAYROLL DEDUCTIONS AND LEAVE BENEFITS

FAMLI will be funded through contributions by both employers and
employees. Specifically, premiums are currently set to 0.9% of each
employee’s wage—half paid by the employer and half paid
by the employee (although employers may voluntarily pay the full
0.9% as a perk to employees). The wages subject to this deduction
are the same as for unemployment insurance and are required only up
to the Social Security cap. Beginning Jan. 1, 2025, the premium
rate may increase, but it is capped at 1.20% total by statute.

The maximum weekly benefit to a covered individual is $1,100,
which is not subject to Colorado income tax. At this time, the
Internal Revenue Service has not determined the applicability of
any federal tax.

Notably, the term “employee” is broadly defined under
FAMLI, allowing self-employed individuals to opt in by paying only
an employee portion (0.45% of wages). Importantly, FAMLI may cover
certain independent contractor relationships—that is, to the
extent a worker is “not free from control of the
principal” and “not engaged in an independent
business or trade,” under FAMLI, the principal entity may be
ultimately liable to the contract worker to provide FAMLI
benefits.

There are detailed final rules regarding how an employer is to
calculate benefits depending upon an employee’s average weekly
earnings. The maximum leave in a rolling calendar year is 12 weeks,
or 16 weeks if the covered individual has a serious health
condition related to pregnancy complications or childbirth
complications.

COVERED EMPLOYERS AND DEGREES OF PARTICIPATION

Virtually all employers with employees in Colorado are covered,
with narrow exceptions: (1) small employers (nine or fewer
employees) are relieved of paying the employer portion of the
premium; (2) a complete opt-out is available for local governments;
and (3) a limited “private plan exemption” is available
to private employers, as detailed below.

01 Small employers of nine or fewer employees (as determined on
a nationwide basis) are exempt only from the employer-paid portion
of the premium, but must still deduct and remit the employee-paid
portion of the premium and provide quarterly wage statements to the
FAMLI Division (“Division”). To determine coverage, the
number of employees employed in the preceding calendar year for 20
or more weeks are counted. Employees of small employers are
eligible for leave under the same conditions as other Colorado
employees covered by FAMLI.

02 Local governments may decline to participate in FAMLI
provided the government’s governing body votes to approve such
an action, either by declining all participation or by declining
employer participation but supporting employees who want to
voluntarily participate by deducting and remitting the employee
share of the premium (0.45% of wages) and corresponding wage data
to the Division every quarter.

03 Private employers that secure a “private plan
exemption” will not be required to collect or remit premiums
to the Division, but will be required to pay an administration fee
to the Division, among other requirements as detailed below.

COORDINATION WITH OTHER BENEFITS

The FAMLI Division acknowledges the need for guidance regarding
coordination of FAMLI leave with other benefits and legal
requirements, which is expected to be forthcoming and to address
the federal Family and Medical Leave Act (FMLA), Colorado’s
Healthy Families and Workplaces Act (HFWA), workers’
compensation, unemployment insurance, short-term disability (STD),
long-term disability (LTD) and employer leave and time-off
policies.

What is known at present is that pursuant to the FAMLI statute,
FAMLI leave runs concurrently with FMLA leave if the leave would
qualify for both. As with FMLA leave, an employer must maintain an
employee’s health insurance coverage during the period of FAMLI
leave (with the employee responsible for their portion of the
premium). However, FAMLI covers a wider range of workers (with a
six-month employment minimum instead of 12 months under the FMLA),
and provides a broader set of reasons for leave than the FMLA (such
as “safe leave” for domestic violence and related
circumstances). As such, a Colorado employee may be entitled to
leave under FAMLI that does not qualify for—and therefore
does not run concurrently with—FMLA leave, and,
within the same 12-month period, be entitled to FMLA leave,
resulting in a very extended period of job-protected (FAMLI and
FMLA) and partially paid (FAMLI only) leave. The FAMLI Division
informed stakeholders during a recent webinar that it is seeking
guidance from the U.S. Department of Labor regarding this
potentially unfair consequence to employers, but stressed that its
“hands are tied” because it lacks authority to alter or
interpret federal law. The existing FMLA regulations simply provide
that an employer must comply with any leave requirement greater
than that provided by the FMLA.

In regard to disability coverage for employees, FAMLI defers to
the applicable plan documents regarding its interaction with FAMLI
leave. Because FAMLI leave lasts a maximum of 12 (or in some cases,
16) weeks, employees may still need STD or LTD for more serious
circumstances. The FAMLI statute provides that an employer may run
FAMLI leave concurrently with STD and LTD benefits, provided the
employer has notified employees in advance that it will do so.

Private employers will also need to determine (in conjunction
with forthcoming Division guidance) how to integrate FAMLI
requirements into existing time-off and leave policies, such as
vacation, paid time off, parental leave and sick time pursuant to
the HFWA. The FAMLI statute expressly prohibits an employer from
requiring an employee to exhaust accrued vacation, sick or other
paid time off prior to or while receiving FAMLI benefits, although
employees may be permitted to do so provided the total benefit to
the employee does not exceed their average weekly wage. An employer
may, however, require employees to use paid time from “a
separate bank of time off solely for the purpose of family and
medical leave” under FAMLI, and only if employees are given
advance written notice of this requirement. Regardless of whether a
private employer is seeking a private plan exemption, most
employers with covered employees in Colorado will need to update or
modify their leave policies, particularly related to FMLA and
HFWA.

Lastly, although the maximum FAMLI leave entitlement is measured
per rolling calendar year, there is confusion regarding how the
Jan. 1, 2024, start date overlaps with this limitation. As of
today, it is unclear what, if any, protections will be put into
place to prevent extended leaves that straddle calendar years 2023
and 2024. For example, the FAMLI statute provides no protections
for an employer against an employee taking the maximum leave under
a private employer’s generous policy at the end of 2023, and
then benefiting from another 12-week leave in the beginning of
2024, because leave under FAMLI does not begin until Jan. 1, 2024,
and a private plan must be at least as generous as FAMLI in order
to successfully obtain an exemption. The Division is aware of this
concern from private employers and has committed to assessing the
issue and providing guidance, which hopefully will be
forthcoming.

PRIVATE PLAN EXEMPTION FOR PRIVATE EMPLOYERS

Private employers may obtain a “private plan
exemption” if they intend to meet their obligations through a
privately administered plan, although they will be required to pay
an administration fee to the Division. The currently proposed
regulations provide that the administration fee will be $1,200.00
for private plan applications received through 2024. For private
plan applications received in and after 2025, the administration
fee amount will be determined at a later date and published on the
Division’s website.

An employer’s proposed plan must be submitted to the
Division for approval. The proposed regulations provide that the
plan must take effect no earlier than the first day of the second
calendar quarter following the date of application. In the
meantime, employers remain liable to the Division for premiums on
wages paid until the effective date of the plan.

The proposed regulations provide that if the Division denies a
proposed private plan, the employer must pay the administration fee
again for subsequent applications, unless the employer submits
another application within 30 calendar days of the denial and cures
all deficiencies. Private plan denials are not subject to an
appeal, per the proposed regulations.

The FAMLI Division announced in August 2022 that it has created
a temporary procedure whereby all Colorado
employers
will begin paying premiums in 2023. To the
extent a private employer secures a private plan that is approved
and effective on or before Jan. 1, 2024, such employer will be
issued a refund of paid 2023 premiums, minus the administration
fee. In a recent webinar, the Division noted that employers who are
confident that they will obtain a private plan in
2024 need not withhold deductions from employees’ paychecks for
the 2023 premiums. However, such employers must ensure that they
have a private plan approved by the state before Jan. 1, 2024 (when
private plans must be effective), or else the employers will
thereafter be responsible for remitting both the employee and
employer portions of 2023 premiums on behalf of their employees.
This requirement to pay 2023 premiums was previously unexpected and
creates an obligation for all private employers in Colorado even if
the employer already has generous leave policies in place. The
Division cited the fact that “intensive due diligence work
with [its] various stakeholders may mean that the market of
equivalent private plan options will not be available to employers
before 2023” as the reason for requiring payment of premiums
by all private employers starting on Jan. 1, 2023.

To achieve approval by the FAMLI Division, a private plan must
confer all the same rights, protections and benefits provided under
FAMLI, including but not limited to:

  • Leave benefits for all of the same purposes allowed under
    FAMLI;

  • Coverage for at least all employees who would be covered by
    FAMLI;

  • The same or greater number of weeks of benefits;

  • The same or greater level of wage replacement;

  • The same or greater maximum weekly benefit amount;

  • Impose no additional restrictions or conditions on benefits or
    leave beyond those explicitly authorized by FAMLI or the associated
    regulations;

  • The ability to take intermittent leave or work a reduced leave
    schedule as allowed under FAMLI;

  • Deduct no more than the state FAMLI amount from employee
    paychecks to cover a privately administered leave program; and

  • Cover all eligible employees through the duration of their
    employment.

The FAMLI Division has adopted final rules regarding employee
notice and documentation obligations (of the need for leave) and
how employers calculate leave benefits, all of which would need to
be analyzed by private employers applying for an exemption.

Critically, a private employer must formalize such a plan
through an insurance carrier, or elect to self-fund the plan, in
which case a surety bond in an amount equal to one year of total
premiums will be required to demonstrate the company’s
financial stability. It is critical that a private plan adhere to
all requirements, as the Division has the statutory mandate to
withdraw approval of such a plan when the conditions of the plan
have been violated, such as failure to pay benefits or failure to
maintain an adequate surety bond. Fees may also be assessed for
private plan violations, up to a maximum of $500 per violation.

Moreover, if a private employer is granted a “private plan
exemption,” the employer is then responsible for administering
this private plan (self-funded or through an insurance company),
and will not benefit from the FAMLI Division’s tracking and
fraud-prevention programs. For private employers with a history of
administering generous and complex leave policies, this may not
pose a significant change, but for private employers without such a
history, this burden could be substantial. Per the proposed
regulations, on April 1 of each year, beginning April 1, 2025, each
employer with a private plan exemption must provide to the Division
a summary of the previous year, including an aggregate summary of
benefits applications received, benefit amounts paid, adverse
determinations of benefits applications, appeals received and the
outcome of appeals received. It is therefore critical for employers
with private plans to keep accurate and contemporaneous
records.

When weighing whether to apply for a “private plan
exemption,” private employers should contemplate the following
considerations as soon as possible:

  • Analyze whether current employee leave policies are at least as
    generous as FAMLI requirements in every respect, and if not, if the
    employer is willing to bring such policies into compliance with
    FAMLI (for example, an employee may not be required to use vacation
    or PTO during FAMLI leave);

  • Determine if altering current leave policies to integrate FAMLI
    would be workable in lieu of an exemption (for example,
    “topping off” FAMLI payments to provide 100% payment to
    employees on FAMLI leave);

  • Calculate the potential savings of participating in FAMLI and
    potential hidden costs of obtaining an exemption, including:

    • The internal cost and resources required to administer an
      employee leave policy at least as generous as FAMLI (including
      tracking leave entitlements, which can be complex when reduced
      hours or intermittent leave is used, as required by FAMLI);

    • The anticipated reaction by employees of an additional paycheck
      deduction and whether the employer would voluntarily pay the
      employee portion of the FAMLI premium;

    • The cost of a custom plan through an insurance carrier;
      and

    • The cost of the administration fee to the Division;


  • Determine logistics of creating a separate account into which
    all employee contributions will be deposited and kept, and
    from which all benefits will be paid and administrative costs may
    be paid;

  • Explore custom plans through an insurance carrier to comply
    with FAMLI; and

  • Obtain quotes for the cost of a security bond in lieu of
    contracting with a third-party insurance company to administer a
    private plan.

According to the proposed regulations, private plan exemptions
are valid for two years from the date that the private plan went
into effect. After two consecutive approvals, an employer may apply
for a longer duration of approval, not to exceed eight years.

During a recent series of informational presentations, the
Division represented that it is aware of many large insurance
carriers that are preparing plans specifically tailored to comply
with FAMLI, along with similar state insurance programs with which
nationwide employers must comply. During an informal poll at this
presentation, the majority of private employers indicated that they
have not yet decided whether they will seek a “private plan
exemption,” but for those that have decided, most will seek
the exemption.

Finally, in addition to posting a notice in a conspicuous
location about FAMLI rights generally, under the proposed
regulations, employers with a private plan will be required to
provide a detailed notice to employees of the benefits and
administration thereunder, no later than 30 days before the
effective date of an approved plan.

IMPORTANT DEADLINES














Deadline

Requirement

Oct. 31, 2023

All covered private employers must apply to the new FAMLI
Division
of the Colorado Department of Labor and Employment for
a “private plan exemption” (detailed below), if
desired.

Jan. 1, 2023

All covered employers (even private employers who plan to apply
for a “private plan exemption”) must register with the
state through the “MyFAMLI+ Employer” system that the
Division expects to “soft launch” in the fourth quarter
of 2022.

Jan. 1, 2023

All covered employers (even private employers who plan to apply
for a “private plan exemption”) must collect premiums
from employees.*

Apr. 30, 2023

All covered employers (even private employers who plan to apply
for a “private plan exemption”) must submit first quarter
premium payments and wage reports to the Division (this date
includes a 30-day grace period for the first installment of these
quarterly payments).*

Jan. 1, 2024

Colorado workers may begin submitting requests for paid family
and medical leave benefits for work absences caused by a qualifying
condition (e.g., serious health condition of the employee or the
employee’s family member, caring for a new child, or safe
leave). Even if the onset date of the qualifying condition began
before Jan. 1, 2024, employees may still apply for benefits to
begin on that date if the condition is continuing.

*As noted above, in a recent webinar, the Division noted that
employers who are confident they will obtain a
private plan in 2024 need not withhold deductions from
employees’ paychecks for the 2023 premiums, but still must pay
the full amount of the 2023 premiums in the event such a plan is
not approved by the state.

CONCLUSION

In sum, all Colorado employers should immediately begin
preparing for FAMLI’s effectiveness in a few short months.
Further, employers should be prepared that there will continue to
be a slew of proposed and finalized regulations and guidance in the
coming months. Brownstein will periodically update this article as
the FAMLI Division finalizes further guidance.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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