Navigating Paid-Leave Benefits and State Requirements

How can employers offer competitive paid-leave packages while staying compliant with state laws? That was the topic of a recent SHRM webinar, “Navigating Paid Leave and Health Care Benefits: Solutions for Complex HR Challenges,” with James Reid, an attorney at Honigman in Ann Arbor, Mich., and Rue Dooley, SHRM-SCP, an HR Knowledge Advisor at SHRM.  

“The biggest challenge my clients have, having state-mandated PTO policies, is that employees feel like they’re being punished or having perks taken away, partly because it’s confusing how the state laws [are written],” Reid said. “For example, if a company already gives 80 hours of vacation to an employee per year, but now that state requires 80 hours to be used” for leave other than vacation, “that employer may not want to offer an additional 80 hours,” which could cost millions of dollars.  

To protect their finances, some employers are giving the 80 hours mandated by the state and telling employees that whatever is left may be used for vacation. This scenario could rub workers the wrong way. “Employees feel like they lost vacation, when in reality, a lot of companies were allowing employees to use that paid time off for vacation, personal, family, or otherwise,” Reid explained. Because state laws mean employers have to get more particular about notice periods, increments, doctors’ notes, and the like, it could be difficult to maintain the original 80-hour PTO bank without making adjustments.  

“If you have an existing policy that satisfies the state’s requirements, it’s usually OK to keep that,” Dooley said. 

However, certain states have niche laws that could easily go unnoticed. Reid pointed out that if, for example, an employer requires a doctor’s note, the state where it’s located may have specific mandates about such policies that would necessitate the employer making changes to remain compliant. The change could be something as small as delaying the need for a doctor’s note by a day, but it would still be necessary to make.  

Dooley encouraged employers to speak candidly with employees about any changes to company PTO policies. These discussions might take the form of in-person meetings or be expressed in writing. The critical point is to be “consistent, be transparent” and to operate “in good faith,” he said.  

Reid agreed with this approach and emphasized making the new policy easily accessible. “Rather than just bury your perks within a hundred pages of a handbook policy, it’s probably better to use technology to create a well-organized table of contents and then maybe to a quick several-minute video” explaining how to navigate the policy, he said. “Employees are smarter than ever about what the laws are and what the policies are,” underscoring the importance of engaging with workers about policy changes instead of merely informing them.

Compliance Across Multiple States 

Employers with workers in multiple states may run into additional compliance complexities, unsure of which state’s laws take precedence. “You have to comply with the labor laws where the work is being performed,” not just where headquarters is, Dooley said. 

Though it may be tempting to have a single policy that addresses the relevant states altogether, this can lead to unnecessary confusion and risk. “I would recommend doing an addendum, which is a separate one-page sheet just for those employees in that state,” Reid said. “You could be increasing your liability” by jumbling states into a single document, which might lead workers in some states to think they have more leave than they actually do. 

Naturally, the concept of juggling multiple states’ leave requirements can be intimidating. “For those that want to keep it simple, they usually find if there’s one state that has the [strictest] policy, which has historically been California,” Reid said. So, “if you start there, and want to be at least that generous to the rest of your workforce, you’re probably 90% of the way there [in terms of] being compliant wherever you have employees.” 

But because laws are constantly changing and some states may have specific nuances, employers should still check specific states’ laws, Dooley cautioned. For example, states may have different rates of PTO accrual. Employers should be “regularly auditing the system to make sure you’re in compliance with each state’s laws,” he said. To do so, he recommended having a reliable leave management system that can negotiate multiple state accrual rates and caps. 

Reid offered another example: Some states “require you to carry over unused time, or there could be some payout requirement” that employers must follow. So, while picking the most generous policy is not a bad move, employers should not ignore individual state requirements.  

Health Insurance Eligibility 

Reid and Dooley also discussed whether part-time employees qualified for health insurance coverage under an employer’s plan.  

“The ACA [Affordable Care Act] only applies if you have 50 or more full-time employees or full-time equivalent,” Reid said. “If you’re at 50 or more full-time, you must offer medical coverage only to those employees working 30 or more hours per week, or 130 hours per month.” He indicated that employers could have issues when part-time employees work varying hours.

For example, an employee may be part-time from January through April, but in May work full-time hours. This employee could theoretically qualify as a full-time employee that month. It is therefore important for employers to monitor hours and consider the health coverage look-back period. Reid explained that “it’s more normal to have a longer measurement period so one little blip here and there” won’t create compliance issues. 

When an employee switches from full-time to part-time, it is understood that their employer will drop the employee from the company health plan. That said, the employer still “has an obligation to offer continuation coverage,” or COBRA, Dooley noted. He encouraged employers to “talk about the changes, whatever those changes are, including effective dates and available options,” in addition to offering resources to employees in a period of transition.  

Other Benefits

When establishing benefits, employers could benefit from being creative. The SHRM HR Knowledge Center has “so many resources that talk about some of the creative, valuable benefits” that aren’t necessarily expensive, Dooley said. Interestingly, he also noted that simply offering certain benefits can be attractive to employees, whether or not they decide to use them.

He listed pet insurance as an example. It appears that the mere fact an employer offers this perk attracts candidates, because the message is that the employer is generous and appreciates animals. 

“Everyone should figure out what their biggest competitor offers” and do it better, Reid said.