Colorado’s new Paid Family and Medical Leave Insurance (FAMLI) program will begin to take effect on January 1, 2023.

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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.

  1. 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.

  2. 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.

  3. 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 EMPLOYERSPrivate 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:

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

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

  3. The same or greater number of weeks of benefits;

  4. The same or greater level of wage replacement;

  5. The same or greater maximum weekly benefit amount;

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

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

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

  9. 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:

  1. 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);

  2. 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);

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

  4. 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);

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

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

  7. The cost of the administration fee to the Division;

  8. 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;

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

  10. 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.  


CONCLUSIONIn 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.