WA Paid Leave – Voluntary Plans

Under Washington’s new Paid Family & Medical Leave (PFML) regulations, an employer is allowed to bypass the state insurance program and implement their own “voluntary” plan. This blog delves into the rules around going “voluntary.”

In our last blog, we outlined the basics of Washington’s new Paid Family & Medical Leave (PFML) law; what companies are required to comply, the timing, payroll tax withholding, etc. This article will delve further into application of the law – specifically as it relates to an employer’s ability to opt out of the state-run insurance program and adopt a voluntary plan.

The Background
The default insurance program for the new Washington Paid Family & Medical Leave (PFML) law will be run by the state’s Employment Security Department (ESD). The regulations allow for an employer to bypass the state program by implementing their own Voluntary Plan, either administered by the employer themselves or through a Third Party Administrator.

When we talk about voluntary benefits in the industry, typically this is in reference to an employee having the option to enroll or waive a line of coverage. However, the PFML’s Voluntary Plan option denotes that an employer can opt out of the state’s PFML program and implement their own.  All Washington employees must still be covered under the program; they are not allowed to waive coverage. 

​Some employers, especially those who must also comply with the Federal Family & Medical Leave Act (FMLA), may find they’d be able to streamline the various requirements of both programs through a voluntary PFML program.  Should your clients be looking at this option?  Let’s take a look at the requirements.

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Voluntary Plans Need Approval
Any employer-sponsored PFML program needs to be approved by the ESD before benefits are offered to employees. The state has set up an online portal for employers to submit their voluntary plan applications, and is advising employers that application review decisions may take approximately 30 days from submission/payment of a $250 application fee.   

If approved, the voluntary plan will go into effect on the 1st day of the following calendar quarter.  If a plan filing is denied, the employer can resubmit their application within 30 days (an additional $250 filing fee will apply). 

​Employers whose applications have not been approved by December 31, 2018 will need to pay into the state’s PFML program in Q1, 2019.  These remittances will continue until the 1st day of the following calendar quarter after receiving approval for a Voluntary Plan. These state premiums are non-refundable. 
 
Two Leave Programs in One
The Washington PFML program consists of two distinct employee benefit programs: family leave and medical leave. Family Leave allows time off to care for a family member, bonding with a newborn or adopted child, and some military-connected leaves. Medical Leave covers time off needed to deal with the employee’s own medical issue. An employer can offer a voluntary program for both of these programs, or just one of them (in which case the state plan would be the default plan for the other).

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The Down Side
There are extra requirements when offering a voluntary program. If any of these are “deal breakers” you can redirect efforts toward the state’s default program.

1. A Trust for Employee Contributions – If the employer deducts premiums from employees’ pay, those funds need to be held in a separate, specifically-identified bank account. Any interest earned on these funds will need to remain part of this Trust. If an employer withdraws their voluntary plan, these funds will need to be remitted to the ESD.
2. Written Notice of Employee Rights – When an employer becomes aware that an employee is taking leave that could qualify for at least 7 consecutive days of PFML, the employer needs to provide written notice of leave rights. If the employee has taken 7 days for a qualifying reason, the employer must provide notice of PFML benefits within 5 business days of that 7th day.
3. Penalties - The penalties for violating PFML provisions are different for employers with voluntary plans:  $1000 for the first offense; $2000 for each offense thereafter. (Penalites using the ESD plan start at $75 for the 2nd offense.)
4. Job Protection for Employers with 50+ Employees – The state program relies on the rules under FMLA (worked 12 months for the employer, for at least 1250 hours). Voluntary plans are required to ease standards on both of these (worked 9 months for the employer, for at least 965 hours during the 12 months preceding the leave), which will result in more employees qualifying for job protection. 
5. New Employees May Qualify Sooner – A new employee will need to be provided PFML benefits once they have worked 820 hours in the qualifying period (as per state records, which will include hours at prior employers) and 320 hours for that new employer. In addition, if the employee was covered under their prior employer’s voluntary plan, they are immediately eligible for their new employer’s voluntary plan. Note - the practical application of this rule is still an open ended question.
6. Claims Processing – Employees will submit claims to the employer (or their administrator). Determination of leave qualification and payment of benefits will need to be handled by the employer (or administrator).
7. State Reporting – Employers will still need to provide the standard PFML reporting data to the state quarterly, plus additional data.  This will include weekly benefit use and leave information for any employee taking leave in the reported quarter.  
8. Audits – Voluntary plans are subject to audit by the ESD.
9. Small Business Assistance Grants – Voluntary plans are not eligible to apply for small business assistance grants, which are available to employers with fewer than 150 quarterly headcount. 
   
10. Resubmitting for Approval – The employer will need to resubmit their plan each year for the first three years. After that, they’ll only need to resubmit if making a change to the program that is not legally required. 

An Upside
With all the downsides, why would an employer even embark on adopting a voluntary plan? One perk of offering a Voluntary Plan is an accelerated payment option. This allows an employer to incentivize an employee to return to work early. The employer would need to offer at least half of the entitled amount of leave, then provide the employee with the full insurance funds as if the employee took the entire leave. As an example, a father wants to take 10 weeks of time off to bond with his newborn. The employer offers the employee an option of taking 8 weeks off, and being paid the additional 2 weeks of leave upon return to work after the 8 weeks. The employee is not required to accept the employer’s accelerated payment option.  

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All Things Being Equal
Any employer offering a voluntary program will still need to abide by the same rules as the state’s PFML program. While they can provide a higher benefit than the state program allows, their provisions cannot fall below the standard minimums for:

• Employees eligible for benefits
• Duration of leave provided
• Leave reasons
• Covered family members
• Benefit amounts
• Benefit appeals

The premiums a Voluntary Plan employer can deduct from their employees’ paychecks cannot exceed the employee portion of the premiums charged under the state’s PFML program.

The Bottom Line
Some employers may opt to provide voluntary plans. However, based on the additional requirements and hoops they would need to go through, I would imagine only larger employers with adequate in-house staff would put their toe into these waters. The drawback for groups with fewer than 150 employees (the loss of access to small business assistance grants) could be another reason why only large employers would elect to implement a voluntary program. Of course, each employer will need to decide for themselves which route will be best for their company and their employees.  

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