Federal law has required certain businesses to offer family and medical leave for decades. An increasing number of states have also enacted or considered passing laws requiring businesses to offer family and medical leave. For small businesses, these laws have distinct pros and cons. This article discusses some of the most important factors small business owners should keep in mind about family and medical leave.
Family and Medical Leave Act
The federal Family and Medical Leave Act (FMLA) mandates that employers having 50 or more employees within a 75-mile radius of the worksite allow them to take unpaid leave for up to 12 weeks to address their own medical issues, care for a sick family member, and upon the birth or adoption of a child. Under the law, the employer cannot terminate an employee for taking leave, thus providing job security.
Note: The federal Pregnancy Discrimination Act prohibits businesses with 15 or more employees from discriminating against women based on pregnancy, childbirth, and related medical conditions, requiring them to be treated the same as other employees who have medical impairments. As a result, if a business with 15 or more employees permits sick or disabled employees to take leave, pregnant women temporarily unable to perform their jobs must also be allowed to do so.
Many small businesses have fewer than 50 employees, meaning that they are exempt from the requirements of the federal FMLA. However, some states have enacted laws applying similar requirements to businesses with fewer employees.
In addition, a few states have enacted laws requiring employers to provide paid leave to many of its employees. The statutes requiring paid leave typically allow the employee to continue to receive a certain percentage, for example, 50% or 75%, of their average weekly pay for a certain time period, usually less than the 12 weeks of unpaid leave guaranteed by the federal FMLA. The paid leave is funded by state-administered insurance programs to which employees contribute, which is aimed at lessening the burden on small business owners.
The Tax Cuts and Jobs Act of 2017 provides a tax credit for employers who allow employees to take paid family and medical leave during 2018 and 2019 (unless Congress decides to extend the credit). Thus, even if a business is not required to offer paid family and medical leave to its employees, if it chooses to, it can then claim a direct reduction of its income tax liability for the year of up to 25% of the compensation paid during the leave. The amount of the tax credit depends upon the percentage of the employee's wages paid during the leave.
The tax credit is also subject to a number of limitations:
- It is not available for leave of two weeks or less,
- The paid leave must be offered to all qualifying employees,
- The employee must have worked for the business for one year or more,
- The paid leave cannot be less than 50% of the employee's normal wages, and
- The credit is not permitted for highly compensated employees.
Regardless of whether it is required by law, offering paid or unpaid leave to employees can be costly for small businesses. Other employees may have to cover the workload of the employee who is on leave in addition to carrying out their own duties, or the business may have to hire and train a temporary employee to do the absent employee's job. However, there are also some benefits to offering leave that small businesses should consider.
Small businesses that offer family and medical leave are more attractive to potential employees. Further, they are more likely to retain their current employees by decreasing the possibility that they will be lured away by larger companies with more attractive benefit packages. Offering family and medical leave also allows valuable employees to take a temporary leave of absence, preserving their jobs, and encouraging them to return when the underlying reason for the leave has been resolved.
As part of our legal services for businesses, we can provide guidance to ensure that your business is in compliance with applicable federal and state law regarding family and medical leave. Even if your small business is not required by law to offer family and medical leave, we can help you think through whether offering leave to employees would be beneficial to your business. In addition, we can assist you in setting up a paid leave plan for employees that would enable your business to take advantage of the current tax credits. We are here to help, so give us a call to set up a consultation.