What Could the Trump Paid Family Leave Proposal Mean for Employers?

The Trump administration’s 2018 budget proposal calls for a six-week paid parental leave policy, to be run through state unemployment insurance (UI) programs. States would have leeway in designing and funding their programs.

This has naturally left employers with many questions and concerns. While the proposal doesn’t contain many specifics, and there’s much to be ironed out, here’s what we know so far.

What’s the estimated cost of the program?

The budget gives a projected cost of $18.5 billion over 10 years, though many analysts believe the cost could be far higher.

Where would the financing come from? Would employer UI tax rates go up?

It’s unclear.

As per the budget document, the proposal is “fully offset” at the federal level through state UI system reforms:

• Reducing fraud
• Helping unemployed workers find jobs more quickly
• Encouraging states to maintain reserves in their Unemployment Trust Fund accounts

Reforming the outdated and inefficient UI system could certainly make life easier for employers, and everyone wants fewer workers in the system and more people gainfully employed. However, there are major challenges in relying on these reforms to fund a new program:

• UI infrastructure in many states is antiquated—some still use paper-only systems and outdated computer programs. Adding a new family leave program would require massive and expensive overhauls that cash-strapped states can’t afford.
• Most state UI programs took a hit during the Great Recession and haven’t fully recovered. Many are underwater. They’re a long way from being able to maintain reserves. It’s unlikely they could support an additional benefit anytime soon, even with reforms.
• Reforms of the system could free up more dollars in the short term, but are unlikely to produce a steady and reliable source of income long-term.
• This proposal would add thousands of people (who are actually employed) to overburdened UI programs, which may then require more resources to handle the influx.

This all adds up to the need for more revenue into the state UI programs. Where would the money come from?

Under the proposal, that’s left to the individual states to figure out. States would need to raise UI tax rates, cut benefits, raise payroll taxes, and/or raise state taxes or cut spending generally in order to fund the family leave program.

So could employer UI tax rates go up under this proposal? Unknown, but it’s a definite possibility.

Who would be eligible?

Beyond stating that the paid leave is for parents who have a new child (biological or adopted), the proposal doesn’t specify who is eligible. It appears to rely on states to establish eligibility standards to determine who could access the paid leave benefit through their UI programs.

UI eligibility varies by state but is largely based on how much and how long the employee worked. Would paid family leave eligibility be based on the same standards, or would states have to come up with new ones? That’s uncertain.

UI tax rate calculations for employers would certainly need to change. Employer tax rates go up depending on how many of their employees become eligible for unemployment. The interest of the employer is therefore to have as few as possible employees go on unemployment. Adding family leave turns this on its head. If the tax rate was not reconfigured, employers could also pay more because their employees had more children.

How much money would a family receive? Would taking parental leave affect the ability to draw unemployment later on?

The proposal doesn’t specify how much money a family would receive during their paid leave period. There is no mandatory minimum set down. The method used to the determine the benefit amount would be left to the states.

When it comes to unemployment insurance, each state has its own formula for determining the weekly benefit amount, as well as how many weeks a person may be eligible. It largely depends on the amount the person made before. It is unclear if states would use the same formula to determine paid leave benefits, or if they would need to develop something new.

It is unknown if claiming parental leave would change the amount of unemployment insurance a person would receive should she or he claim it later.

One big question is whether or not the paid leave benefit amount would be enough to make a difference for new parents. The budget’s cost estimate of $18.5 billion over 10 years suggests an average weekly benefit of less than $240. It’s difficult to imagine that many states would be able to provide a larger amount without tax increases or spending cuts.

This means that if the estimate is accurate, many workers wouldn’t be able to afford to take leave anyway. There could be little real benefit after so much overhaul, effort and expense.

How might the plan affect existing state and company programs?

Currently four states (New York, California, New Jersey, Rhode Island), the District of Columbia, and many municipalities have created their own paid family leave programs. Many organizations also voluntarily offer paid leave as a benefit to their employees. In many cases, they are more generous and extensive than the proposed six week parental leave.

Since the proposed federal program is designed to extend paid leave to those who don’t already have it, it shouldn’t have a direct effect on existing policies. Still, the indirect impact hasn’t been determined. For example, paid parental leave may be seen as less of a recruitment incentive for prospective employees if there is a federal program. If states without an existing program must raise UI rates to fund one, all employers foot the bill.

What are some possible legal challenges to this proposal?

Should this proposal become law, states without a paid family leave program in place would have to create one. It’s unlikely that all states would be amenable, meaning the federal government would have to legally compel them to do so.

In that, the precedent of law is not on their side. The Supreme Court ruling over the Affordable Care Act’s Medicaid expansion discouraged the idea that the federal government can coerce states to expand their programs. If the program was voluntary, it’s likely that, just as in the case with the Medicaid expansion, not every state would choose to adopt it.

The idea of running paid family leave through the UI system isn’t new. President Clinton proposed the same thing during his second term. A number of states considered it, but none implemented it. Eventually, President George W. Bush’s Labor Department found that the proposed regulation ran counter to federal law because unemployment benefits require recipients to be available to work. Employees on paid family leave are by definition unable to work while they are away.

What’s next?

This plan, and indeed the entire White House budget which contains it, is only a proposal. Congress would have to pass legislation for the paid leave plan to go into effect. It is likely to garner opposition from Republican lawmakers who oppose paid leave and Democrats who believe it doesn’t cover enough (for example, most workers take family leave to care for a sick family member, not for a new baby). Should it pass, it’s likely to spark legal challenges from states.

This proposal is worth keeping an eye on, but there probably won’t be much movement on it in the immediate future.