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Paul Zimmerman

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CA Increases Paid Family Leave Benefits

Article originally appeared in Hotel Association of Los Angeles (HALA) Newsletter.

In April, California Governor Jerry Brown signed Assembly Bill 908 (AB 908) into law, increasing wage replacement benefits for employees who take leave under California’s existing paid family leave law. Fifteen years after California became the first state to guarantee workers paid time off to care for a new child or ailing family member, the state now seeks to increase employee utilization of family leave – particularly among lower-income workers. Employers, especially those with a significant number of workers earning near the minimum wage (as in the hospitality industry), should prepare for a potential rise in family leave claims.

The California Paid Family Leave (PFL) program provides up to six weeks within a 12-month period of wage replacement benefits to workers who take time off work to care for a seriously ill or injured family member or to bond with a minor child within one year of birth or placement of the child in connection with foster care or adoption. The California State Disability Insurance (SDI) program provides benefits to individuals who are unable to work because of their own illness or injury.

The existing law provides a benefit of 55% of a worker's lost wages, currently up to $1,129 per week, for employees who qualify for SDI or PFL. The program is currently financed through the disability insurance taxes that employees pay, and costs employers nothing.

The new law (AB 908) will modify the formula for calculating benefits under SDI and PFL to ensure a minimum weekly benefit of $50 and raise the “wage replacement rate” to 70% for anyone making one-third or less of the state's average wage. The rate will rise to 60% for everyone else, but will not exceed the maximum workers’ compensation temporary disability indemnity weekly benefit amount established by the Department of Industrial Relations pursuant to existing law. 

Commencing on January 1, 2018, AB 908 will also do away with the current seven-day unpaid waiting period for workers taking PFL, and will require the Employment Development Department (EDD) to produce a report to the legislature by July 1, 2017 on potential costs and benefits of eliminating and/or modifying the current waiting period.

The wage replacement rates under AB 908 will be operative from January 1, 2018 until January 1, 2022. The law directs the EDD to produce a report by March 1, 2021 in order to examine the impact on utilization. This will help determine if the wage replacement constitutes a sufficient employee incentive.

Similarly, if San Francisco is any indication, California’s larger cities are likely to explore family leave laws in order to further incentivize the local workforce to utilize the SDI program. The San Francisco Board of Supervisors has unanimously approved legislation that would require private employers in the city to provide partial compensation to employees taking leave to bond with a newborn child under the PFL program. Essentially, when combined with existing partial wage replacement from the PFL program, employees who earn up to a maximum of $106,000 annually will receive complete wage replacement during a covered parental leave as a result of the legislation. The ordinance was signed into law in April, making San Francisco the first municipality in the United States to enact such a program.  The San Francisco legislation will take effect in three phases. Starting on January 1, 2017, San Francisco employers with 50 or more employees will be required to pay employees at least 45% of their regular gross weekly wage during the six-week leave period. On July 1, 2017, the legislation will expand to include San Francisco employers with 35 or more employees. Finally, on January 1, 2018, it will apply to employers with 20 or more employees. Will this be the beginning of a larger trend of California cities requiring private employers to subsidize family leave? Only time will tell, but the signs point to a statewide renewed emphasis on encouraging low-wage employees to utilize family leave benefits.

Employers should pay careful attention to developments in this area to ensure that they are in compliance with new laws and policies regarding paid family leave at the state and municipal level. Employers also should consider how best to integrate the new policies into their human resources administration.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.