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Leaves of a Different Color

Multi-state corporations could be in a quandary if other states follow California and expand the federal family-leave law. So far, 27 states are studying the idea.
Lori Calabro, CFO Magazine
November 12, 2004

As goes California, so goes the nation. At least that is the case with a new paid family leave law that went into effect on July 1. Now 27 other states are considering similar options. The problem for employers: the rules all promise to be different.

California's law, which was first enacted in 2002, builds on the federal Family and Medical Leave Act of 1993, with an important difference: the state's law guarantees employees six weeks of partial pay within any 12-month period if they need time to care for a newborn, sick child, or other family member. The federal law, on the other hand, allows up to 12 weeks of unpaid leave for such purposes.

For their part, most employers are not required to contribute to the program. Instead, employees participate through payroll deductions and are eligible to receive 55 percent of their weekly pay annually, up to a maximum of $728 a week. That doesn't mean there aren't costs, however. For companies that opt out of California's disability system, there could be costs associated with running the program privately, since companies can't charge employees more than 0.08 percent of their taxable wages annually, but must match the state's benefits.

The bigger problem, however, may be administering the program. "Companies are already dealing with sick time, vacation time, and leave, and now they have to add this to the mix," says Ron Mason, principal of Towers Perrin. What will be particularly troublesome is when other states enact similar legislation, he adds. In 2003, 27 states offered 73 paid-leave legislative proposals -- 9 of which mirrored California's law. "The problem is that states never duplicate one another in these types of legislation," says Mason. That means many companies will soon have to juggle multiple programs.

In California, the first few months of the program have been rife with glitches. Inadequate staffing and computer systems have led to backlogs, even though fewer employees than expected have applied for the benefit. "The brutal reality is that only one employee has utilized the leave so far," says Thomas A. Schreck, CFO of Cupertino, Calif.-based Durect Corp., which has a workforce of 130.

That may not be the case for long. "Many employers haven't been hit with the full impact of the law," says Ophelia Galindo of Mercer Human Resource Consulting, who predicts a steady increase in employees taking advantage of the benefit.




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