Colorado employers who missed cutoff for paying state-leave premiums face fines

Colorado employers, large and small, had until May 31 to pay premiums into the state’s new Family and Medical Leave Insurance program or face late fees and other fines.

About 85% or close to 189,000 employers met the deadline, registering for the program and submitting a wage report and payment, according to the Colorado Department of Labor and Employment, which is administering the program.

“The deadline for the first quarter was April 30. But because it was a new program, we extended that to May 31. Even an employer with one employee must register,” said Cher Haavind, the deputy executive director at CDLE, during a town hall call on May 25.

Employers who didn’t meet the deadline now face late fees of $50 per employee, as well as interest rates of around 8% annually on unpaid premium amounts.

“The longer you wait, the more expensive it gets. We don’t want to put a huge financial burden on someone who is late with us, but we do want that information,” said David Gallivan, compliance and appeals branch manager for the Colorado FAMLI Division.

Colorado voters passed Proposition 118 in November 2020, creating a new state-run family and medical leave program. Starting next year, it will provide workers in the state up to 12 weeks of paid leave to deal with a serious health condition or to care for a family member. Up to 16 weeks are offered for parents or guardians welcoming a newborn child, foster child or adopted child.

The state plan represents a step-up for workers from the federal Family and Medical Leave Act, which provides up to 12 weeks of unpaid leave and no guarantees of a job on return. Colorado workers will receive a portion of their pay during leave and can’t be fired or dismissed for using the program.

Firms with nine or fewer workers were required to withhold 0.45% of any employee’s pay, whether full-time or part-time, at the start of the year. In the case of firms with 10 or more employees, an additional match of 0.45% is required, bringing the total premium to 0.9%. Those first-quarter premiums were due on May 31 and future premiums will be due within the month following the end of each quarter.

Employers who were late to the game can still make the required payments with a late fee. But they can’t retroactively withhold the premiums from an employee’s wages. They will need to foot the bill for the first quarter and start withholding for the second quarter.

The state program allows employers who don’t wish to rely on the state-run fund to find coverage through a private provider or to self-insure. Two outside providers have won approval from the Colorado Division of Insurance to provide leave coverage and another 15 have applications under review, said Gallivan.

Employers will have to pay an initial $500 fee to go with an alternative route, along with an annual maintenance fee. That recurring fee will be based on how often FAMLI resources are required to resolve disputes regarding leave eligibility by an employee. The more adjudication, the higher the fee.

Until they are approved to go outside the state program, employers must continue to collect premiums and forward them to the state. Once they switch over, they can either refund that money collected to employees or apply it to the premiums required under the private coverage.

The next significant milestone for FAMLI comes in August when a portal will open up for healthcare providers, allowing them to provide information on behalf of their patients to the state and certify serious health conditions. That will reduce the amount of back-and-forth paperwork required, speed up approvals for leave and help the state better detect and control fraud.

FAMLI follows a model similar to the state unemployment insurance program, in which employers pay premiums every quarter to fund benefits. The state determines eligibility for leave and handles disputes between employees and employers.

The program will start to pay benefits in January, but employees who are expecting a child next year or who are dealing with a chronic illness they think might require leave in 2024 will be able to submit requests later this year. For planning purposes, the CDLE maintains a calculator that estimates potential benefits, which are based on a worker’s average weekly wage from the previous five quarters in relation to the average weekly wage for the state.

Workers making less than $710.59 each week are eligible to receive 90% of their pay as a benefit, while those making more than that amount will receive a benefit set at 50% of their wages, up to a maximum of $1,100 a week.

One consideration that employers may want to weigh is starting FMLA at the same time FAMLI starts to cut down on employees “stacking” or using up paid leave and then switching to unpaid leave — say taking 16 weeks of paid leave under the state program to care for a newborn and then another 12 weeks of unpaid leave under the federal program.

Although a lot of questions on how the program will work have been resolved, such as the interplay of worker’s compensation coverage and leave, the taxability of the premiums isn’t one of them.

“We say that what the employer is paying is nontaxable. It is not taxable under state income tax rules. We don’t have any particular guidance from the IRS. We have asked the IRS for guidance, but we haven’t gotten it,” said Gallivan.

Another unknown is how actively employees will make use of the program and whether the state has properly estimated the premiums that need to be collected. The Common Sense Institute, a business-funded advocacy group, noted late last year that the leave program in Washington, which Colorado used as a model, has already run into serious solvency problems since its 2020 launch.

“As it stands, the program could overburden Colorado employers with costs or become insolvent over the next several years. If that risk materializes, either premium rates will have to be raised above 1.2% (the cap under the current law), benefits will have to be curtailed, or the state will have to allocate General Fund money to keep the program afloat,” the CSI report said.

CSI estimates that payroll withholding in Colorado needs to be at a combined 1.7%, not the 0.9% currently targeted, to handle expected leave claims, a forecast the state disputes.

Although the 33,000 Colorado employers who aren’t in compliance isn’t a small number, and active outreach efforts remain underway, Haavind said, with another big marketing push expected later in the year to reach workers.