The federal Family and Medical Leave Act provides up to 12 weeks of unpaid leave for various reasons. Five states plus the District of Columbia have enacted laws mandating some period of paid leave for various reasons covered by the FMLA, with other states and many municipalities mandating paid sick leave for employees.
Although legislation has been introduced which would require employers to provide paid FMLA leave, it has not gotten much traction – yet. As part of the Federal Tax Cuts and Jobs Act passed in late 2017, the Federal Government did take a first step toward encouraging employers to provide paid FMLA leave. Section 45S of the TCJA provides a limited tax credit for employers who provide voluntary paid leave for one, some or all the various reasons leave is available under the FMLA.
In order to take advantage of the general business tax credit provided by Section 45S, the employer must have a written policy that provides at least two weeks of paid family and medical leave to qualifying employees who work full time. The paid leave must be not less than 50 percent of the wages normally paid to the employee. Paid leave is prorated for part-time employees. A qualifying employee is one who has been employed for at least one year and who, during the preceding year, had compensation of not more than a specified amount the preceding year. For 2018, the employee must not have earned more than $72,000 in 2017.
If the employer provides paid vacation leave, personal leave, or medical or sick leave (other than leave specifically for one or more of the purposes covered by the TCJA), that paid leave does not qualify for the credit. In addition, any leave paid by a state or local government program or required by state or local law will not be taken into account in determining the amount of employer-provided paid family and medical leave.
Michigan law does not presently provide for any type of paid family or medical leave or paid sick leave, but a ballot proposal has been submitted that would require employers to provide one hour of paid leave to employees for each thirty hours worked. The paid leave would cover most of the reasons leave is available under the FMLA, plus many others. If the ballot proposal obtains enough signatures and is enacted or passed, this paid sick leave would not qualify for the Section 45S credit.
The tax credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per tax year. The minimum credit is 12.5%, which increases by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee’s wages. The maximum credit is 25%.
The Section 45S credit expires on December 31, 2018 unless renewed by Congress.
Employers with a paid leave policy that fits the TCJA criteria will need to implement recordkeeping procedures to identify individuals whose paid leave will qualify for the TCJA credit. The individuals who qualify for paid leave under an employer’s paid leave policy may not always line up with the individuals whose paid leave will qualify for the TCJA credit. Further, employers considering enacting a qualifying policy will need to take the credit’s December 31, 2018 expiration date into consideration as it is often difficult from an employee-relations perspective to take away a benefit once it has been granted.
If you have any questions about the Section 45S tax cut or the Michigan ballot proposal on paid leave, please contact any member of the Warner Norcross + Judd Labor and Employment Group.