On December 6, the District of Columbia Council advanced a bill, the Universal Paid Leave Act of 2016 (an amended version of which was ultimately put to vote), to create a new paid family and medical leave benefit funded by an employer payroll tax.
California, Rhode Island, and New Jersey currently have laws in effect that provide for paid family leave, and New York has passed a similar law that will go into effect in 2018. Though enacted in only four states thus far, similar bills were proposed in twenty-three states and D.C. during the 2015 legislative session, some of which have gained traction, such as a paid sick leave proposal recently announced by Maryland Governor Larry Hogan.
The District’s paid leave benefit would be funded entirely by a new 0.62 percent employer payroll tax on local employers. The tax is estimated to cost local employers nearly $250 million per year once the law takes effect.
{mosads}The District’s approach to funding the paid leave benefit stands out compared to the funding approaches used in states with existing paid leave programs and in those that have considered similar programs. The four adopted paid family leave programs are all funded through employee-paid payroll deductions.
The proposals that other states have considered took a variety of approaches. Some bills would have provided for a combination of employer and employee payroll deductions, while others offered tax credits to businesses already providing paid leave.
The District’s approach, a program funded solely with employer contributions, is a less common one.
The bill, which advanced on an 11-2 vote, would provide eight weeks of paid leave for both full and part-time workers to care for newborn or adopted children and guarantee six weeks of paid leave for workers to care for sick relatives.
The bill would also provide for two weeks of annual personal sick leave. Many employees eligible for the paid leave benefits would already qualify for unpaid leave under the federal and the District family and medical leave laws.
A government fund created with the new employer payroll taxes would pay workers during their leaves. The bill includes progressive payment rates, such that lower-income individuals receive a greater percentage of their normal salary during periods of time off covered by the program.
The fund created with the tax revenue would pay a base amount equal to 90 percent of a worker’s average weekly wage up to 150 percent of the District’s minimum wage. Based on the District’s current minimum wage laws, which are phasing in a $15 per hour minimum wage, the base amount is expected to be calculated on up to $900 in weekly salary by the time the program would take effect.
A worker whose average weekly wage exceeds 150 percent of the amount on which the base amount is calculated would receive the base amount plus 50 percent of the worker’s weekly wage above such amount. For example, a worker with an average weekly wage of $500 would receive benefit payments of $450 per week, or 90 percent of his or her average wage.
A worker with an average weekly wage of $1,200 would receive benefit payments of $960 per week, or 80 percent of his or her average weekly wage. Payments would be capped at $1,000 a week, with the cap being subject to increases for inflation beginning in 2021.
Although scaled back from its original version, which provided higher benefits for up to 16 weeks, the District’s proposed program would be generous in comparison to those in other states. The existing programs in other states provide workers a lower wage replacement rate than proposed under the District’s program, although some states have a higher limit on benefits.
Additionally, the number of weeks of paid leave available under the District’s program is, on the whole, greater than in all but New York. Although the number of weeks available for family care would not be greater in the District than in some other states, the District’s program generally provides more time for birth or adoption.
A large portion of the benefits from the bill would flow to residents who commute into the District from neighboring states, while District residents who work outside of the District would not be covered by the bill.
However, Maryland and Virginia residents who work within the District would be covered and entitled to benefits from the government fund created by the bill. Federal government workers would also not benefit from the paid leave fund because of the District’s inability to impose a tax on the federal government.
An earlier version of the bill provided benefits to District residents who worked outside of the District or for the federal government and required them to make contributions into the fund as part of their income taxes. The approved bill only permits self-employed individuals to opt-in to the program and pay the tax.
If enacted, the D.C. government will likely face implementation challenges because it lacks a pre-existing administrative mechanism. The adopted paid leave programs are managed through each state’s temporary disability insurance (TDI) program, a ready-made channel through which to administer these payments.
Washington, which does not have a TDI program, passed a paid leave law in 2007 but subsequent legislation indefinitely postponed implementation due to administrative challenges. Because the District does not have a TDI program to leverage, the challenges faced by it are likely similar to those that were faced by Washington.
The bill must pass a final D.C. Council vote on Dec. 20 and approval by District Mayor Muriel E. Bowser. Bowser’s office has given multiple indications that the mayor disfavors the bill, particularly the fact that beneficiaries of the bill will be largely non-District residents.
However, Tuesday’s 11-2 margin suggests that sufficient support may exist to override a mayoral veto, which requires only nine votes. If the bill is ultimately enacted, benefits would likely not be available before 2019, as the District would need time to develop an administrative framework and fund the program.
Michael Chittenden is Counsel in the Tax and Employee Benefits practices. Nicholas Wamsley is an Associate in the Employee Benefits practice at Miller & Chevalier Chartered in Washington, D.C.
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