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Paid Leave Oregon – Volume 1: Is Pursuing an “Equivalent Plan” Right for Your Business?

By Paige Alli & Christine M. Zinter - Bullard Law

September 13, 2022

Oregon House Bill 2005, designed to provide nearly all working Oregonians with paid family and medical leave, passed the legislature on a 21-6 bipartisan vote in 2019. However, COVID delayed the design and implementation of the program, touted as the most generous paid family leave law in the country, until earlier this year. Now, Paid Leave Oregon, the brand name of the Oregon Family and Medical Leave Insurance (“FMLI”) program, is ready for its debut.

The key aspect of Paid Leave Oregon is that it provides 12 weeks of paid leave per year and up to 14 weeks for pregnancy-related conditions.

Effective January 1, 2023, employers with 25 or more employees counted on a nationwide basis and employees working in Oregon will begin paying premiums via payroll tax to the Oregon Employment Department. Assuming no further program delays, benefits will be available to eligible claimants starting September 3, 2023.

The initial tax rate is set at 1.0% on wages up to $132,900, of which 0.6% is paid by the employee and the remaining 0.4% by the employer. The legislation currently caps the tax at 1.0%, but inflation will increase the wage base annually. Employer and employee participation is mandatory unless an employer has an “equivalent plan” and receives Employment Department approval. There is also a grandfathering exception for certain employers with a collective bargaining agreement (see below).

Employers who wish to waive participation in the state-run FMLI program by offering an equivalent plan in-house may now file an application with the Department via Frances Online. Paid Leave Oregon’s eligibility and benefit details will be discussed in detail in an upcoming Alert, or sign up to attend our complimentary 2022 Bullard Law Annual Briefing on October 20 and learn all about it.

The experts at Bullard Law have run the numbers, including benefits to be paid versus employer tax burden, and have concluded that employers will be best served, financially and administratively, by simply paying the payroll tax and letting the state provide the leave benefits. However, since there is never a one-size-fits-all solution, this advice may not apply to very large employers (1,000 + employees), employers who have long-standing paid leave programs in place and a predominance of the employees already have large, accumulated leave banks, and employers with collectively bargained agreements with unions that address paid leave.

Plan Administration is an Extra Burden on Employers

From an administrative perspective, participating in Paid Leave Oregon removes the employer from having to make any decisions about an employee’s leave claim eligibility or benefit payment calculation. Most employers do not want to ask an employee for medical documentation to substantiate a paid leave, let alone ask an employee to substantiate a family member’s serious health condition. Requesting and maintaining such sensitive information also creates potential liability issues for employers. This is particularly true considering Paid Leave Oregon’s expansive definition of “family member,” which includes a panoply of blood relatives, relatives-by-marriage, and individuals with a close family-like affinity to the employee.

Simpler by far for employers, let the folks at Paid Leave Oregon make those eligibility determinations and, more importantly, be the “bad guy” if they deny a claim. Anecdotally, Washington’s paid leave program has rarely denied leave applications, including for ineligible employees, and is now paying the price, literally, by having insufficient funds for the program. Increased scrutiny of applications is expected. 

Some insurance companies are ready to step in and sell employers a fully insured “equivalent plan” product or to act as employers’ third-party claims administrators (“TPA”) for a self-insured program. As mentioned above, very large employers may benefit financially from such arrangements. As with all self-insurance, it is important to not only “run the numbers” but also to gain an understanding of any administrative functions the insurer/TPA will expect the employer to fulfill.

Financial Costs of Paid Leave Oregon Versus Self-Insuring

If avoiding the administrative burden of running a paid leave program is not enough to convince employers to let the state administer FMLI benefits, a cost-benefit analysis may be persuasive. Using a very simplified underwriting methodology, Bullard’s benefits specialists can quickly help employers to determine whether paying the 0.4% employer tax is a better financial decision than self-insuring an in-house program. We will review the math in detail at our Annual Briefing. But, for now, suffice it to say that unless you are a very large (1,000+ employees) company, simple math will show that it takes very few employees claiming a full 12 weeks of benefits before the self-insured employer pays more for the paid leave than it would to pay its entire annual tax burden.

Employers with Collective Bargaining Agreements

Some employers may not yet need to contribute to Paid Leave Oregon. Employers that have a current Collective Bargaining Agreement (“CBA”) that was in effect prior to September 30, 2019, are not currently required to participate in the program (new contracts will need to address the issue, Bullard’s labor law specialists can help with this process). Employers who are party to a CBA that has expired or been re-negotiated since September 30, 2019, will be subject to Paid Leave Oregon. For a CBA to be “in effect,” it must have either been ratified by the parties or the terms and conditions of the CBA were being followed prior to September 30, 2019. If the ratification date is different than the date the parties began following the terms and conditions of the CBA, the deciding date is whichever date comes last.

Challenging situations arise for an employer that has some employees who are covered by a CBA and some employees who are not. For employees in bargaining units with an effective CBA that was last ratified or implemented prior to September 30, 2019, neither the employees nor the employer are currently required to participate in Paid Leave Oregon. All other employees will contribute to Paid Leave Oregon via a payroll tax, and the employer must likewise pay their respective percentage of the tax.

How to File for an “Equivalent Plan” Waiver

If you are still unsure whether using the state FMLI program is a better decision than running a plan in house, and you still wish to at least apply for an equivalent plan waiver, here is what you need to know:
•    Your plan must provide benefits equal or greater than the state plan.
•    Your plan must cover all employees who have been employed for 30 calendar days.
•    If you charge an employee premium, it cannot exceed the 0.6% payroll tax, and any employee money used to fund the benefits has to be held in a separate trust account.
•    You will be required to re-apply for the waiver annually for the next three years.
•    The waiver must be all or nothing – in other words, an employer cannot use Paid Leave Oregon to cover a certain class of workers but provide a self-insured program for others.

Employers seeking an equivalent plan waiver must file by November 30, 2022, in order to waive premium contributions beginning on January 1, 2023.

Oregon employers wishing to review their sick leave and other PTO policies in light of this new state-sponsored (or self-insured) benefit are encouraged to contact the employment law experts at Bullard Law. More information on integrating Paid Leave Oregon with current sick leave and PTO policies will be in a forthcoming Alert.

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