Q1 ’25: You Give [Leave] a Bad Name

You’ve thought about it. You’ve dreamed about it. You’ve wished for it. But you were never sure if it would ever happen.

Last month, it did happen.

January 14, 2025, marked a day of clarity for employers everywhere as the Department of Labor (DOL) released a new Opinion Letter on administering Family and Medical Leave Act (FMLA) leave for an employee when their entitlement runs concurrently with a state-mandated paid leave law. OK – maybe it wasn’t exactly as exciting as made out to be; however, this letter has important details that are tremendously helpful for coordinating your employee’s paid leave benefits with the FMLA!

States are passing Paid Family and Medical Leave (PFML) laws like how polo-wearing, visor-adorning salespeople aggressively try to sell the crowd peanuts at baseball games. You may have a hankering for peanuts just like you want your employees to have paid leave benefits. At the same time, approaching a shouting salesperson that is 20 rows and 200 people away from you can be comparatively as daunting as juggling an avalanche of complicated new leave regulations. Those peanut salespeople just shout so loud, and they’re so inconveniently positioned in the stands – not ideal!

The FMLA and PFML laws both offer leave to eligible employees for family and medical reasons. The difficulty of administering state PFML programs is they have their own eligibility, leave reasons, duration, and a paid component, which often differs from the unpaid entitlement granted by the FMLA. Coordinating these state PFML laws with the FMLA when an employee is eligible for both can often feel like trying to put a square peg into a round hole.

To add another ingredient into the mix, FMLA allows employees the option to use accrued employer-provided paid leave such as PTO, vacation, or sick leave. An employee using employer-provided paid leave during their unpaid FMLA entitlement is referred to as “substituting” leave because the two benefits run concurrently, meaning they are used at the same time. When FMLA is taken without any other paid benefit, employers have the authority to require an employee, or an employee can elect, to substitute an employer-provided paid leave benefit.

However, if during leave covered by FMLA, the employee receives any compensation from a state/local paid family and medical leave program, the employer cannot force the employee to exhaust any employer-provided paid leave at the same time. Nevertheless, because those benefits often only provide partial pay, an employee and employer can agree to “top up” an employee’s paid benefits to 100% of their usual pay using accrued employer-provided paid leave.

This Opinion Letter provides employers with the ability to decide whether to allow employees on FMLA to use their accruals to top up PFML benefits. However, many state PFML programs allow employees to “top up” benefits even without employer consent so employers should verify their understanding of the benefit supplementation rules under the applicable PFML programs. And to complicate this even further, if the employee is using regulatory Paid Sick Leave (PSL) to supplement a PFML benefit, the use of PSL is often optional for employees. The same concept applies when only short-term disability is in play during an FMLA leave, the employee and employer can agree to “top up” pay from the STD benefit to 100% of the employee’s usual wage.

Finally, the DOL clarified that if an employee uses state PFML benefits for an FMLA qualifying reason, the employer should always designate the leave as FMLA.

I believe that’s 1 point for state PFML programs and 0 for peanut salespeople!

Recently, the IRS provided guidance on the employment tax treatments of contributions to and benefits paid under state paid family and medical leave (PFML) programs by releasing Revenue Ruling 2025-4 (consult your tax attorney for further interpretation). This is a welcome shift from the prior guidance of . . . none whatsoever.

The effective date of the guidance is noted as January 1, 2025, however, RR 2025-4 stated “calendar year 2025 will be regarded as a transition period for purposes of IRS enforcement and administration of the information reporting requirements . . . and this period is intended to provide States and employers time to configure their reporting and other systems and to facilitate an orderly transition to compliance.”

Benefits are considered wages for employment tax purposes. They are subject to FICA, FUTA, and income tax withholding unless the payment qualifies for exclusion under accident or health plan rules. Meaning, the tax implications can differ depending upon whether the payment is for family or medical leave.

State Family Leave Benefits Paid to Employee:

• Amounts paid to the employee under the family leave provisions of PFML are to be included in the employee’s federal gross income, regardless of whether the employee or employer paid the premiums.
• PFML benefits paid to the employee are NOT considered wages for federal employment taxes, such as Social Security and Medicare.

State Medical Leave Benefits Paid to Employee:

• Amounts paid for the employee’s own serious health condition are treated as amounts received through accident or health insurance. The taxation of such benefits is dependent on the percentage of the premium paid by the employer and employee.
  • Employees must include in their federal gross income, any amount received attributable to the employer state mandated premium percentage. For example, if an employer is required to pay 40% of the premium, then 40% of the amount received by the employee is subject to federal income, as well as employment taxes.
  • The amount attributable to the employee contribution, as well as any employer pick-up of the employee contribution, are excluded from employee’s federal gross income. For example, the state mandates the employer pays 40% of the PFML premium and the employee portion is 60%. However, the employer voluntarily pays all the employee’s portion. The employee would still only be taxed on the state employer premium mandated amount of 40%.

Contributions made by employees are treated as after-tax contributions. Contributions made by employers are generally excluded from an employee’s gross income and are not subject to FICA, FUTA, or federal income tax withholding. However, employee-required PFML premium amounts paid by an employer are considered taxable income to the employee, treated as additional compensation and subject to FICA, FUTA, and income tax withholding.

The ruling outlines taxable amounts must be accurately reflected on an employee’s W-2 forms, including employer-paid contributions treated as wages and taxable benefits paid to employees.

The administrative burden is placed on employers to distinguish between taxable and non-taxable contributions and benefits.

I’m basically sorry for putting you to sleep with this article content.

With more employers incorporating wearable technology in the workplace, the Equal Employment Opportunity Commission (EEOC) released a new fact sheet on “Wearables in the Workplace: The Use of Wearables and Other Monitoring Technology Under Federal Employment Discrimination Laws.” The document explains how employers can navigate the complexities of using wearable technologies while ensuring compliance with the Americans with Disabilities Act (ADA), the Pregnant Workers Fairness Act (PWFA), and, to a lesser extent, Title VII and GINA. Let’s dig in!

What are wearable technologies, you ask? Wearable technologies, or “wearables,” are electronic devices designed to be worn on the body. They are often embedded with sensors that can track bodily movements, collect biometric information, or monitor environmental conditions. Some examples include smart watches, fitness trackers, glucose monitors, or smart rings (e.g., Oura Ring – note: this is not an endorsement for Oura).

Wearables in the workplace may implicate federal and state employment, data privacy, AI, and other laws when employers require employees to wear them or if the information collected from the wearable is reported to the employer.

The EEOC’s new guidance outlines several important considerations, albeit nothing earth shattering, for employers using wearable technologies with employees:

1. Employers using wearables to collect information about an employee’s physical or mental condition, such as blood pressure monitors or eye trackers, may be conducting “medical examinations” under the ADA. Pivot, do any of you wonder what eye trackers are? OK good, me too. In my brief Google research, I learned these devices can be used to monitor workplace safety but also assess focus (remember to take them off when going to the bathroom). Keep in mind, a medical exam is defined as a procedure or test that seeks information about an individual’s physical or mental impairments or health and directing employees to provide health information in connection with using wearables may constitute disability-related inquiries. Under the ADA, medical examinations and disability-related inquiries are strictly limited to situations where they are job-related and consistent with business necessity or when required under a federal law or safety regulation.

2. Any medical or disability-related data collected from wearable devices must be kept confidential and stored separately from the employee’s personnel file. This information should only be shared with individuals who need to know for legitimate business reasons.

3. Ensure the use of wearable-generated information does not lead to discrimination based on a protected characteristic.

4. Employers may need to make exceptions to a wearables policy as a reasonable accommodation under the ADA or PWFA.

With the ADA’s broader definition of disability and inclusion of impairments that are episodic in nature, employers should place a heavier focus on the employee’s accommodation request, as opposed to trying to identify if the employee is qualified as disabled under the ADA. In a recent decision, a federal appellate court made a strong case for just that.

This case involved a physical therapist who experienced a miscarriage, which exacerbated her pre-existing PTSD, anxiety, and depression (due to the loss of a premature child years earlier). To return from leave, the employee requested the accommodation of relocation to another facility because coworkers at her originally assigned worksite had been gossiping about her reason for leave, speculating she was off work to attend her child’s gymnastics meet. After her request to transfer to another location was denied, she was eventually terminated for job abandonment.

Prior to termination, the employee’s return-to-work paperwork outlined that she was not able to return to the location in which she was originally assigned, as thoughts of returning to that location would trigger anxiety and panic attacks. Further, it did not bode well that an employer administrator testified “as a general policy, [employer] does not transfer employees to available positions as an accommodation.” Insert face palm emoji. Further, the employer argued the employee was not disabled because a personality conflict is not a disability for the purposes of the ADA.

This argument did not “land well” because it limited its analysis to the major life activity of working. True, personality conflicts and similar workplace stress issues are not, on their own, substantial limitations on the major activity of working; however, there were limits to major life activities, beyond working. The plaintiff provided evidence that her PTSD and anxiety substantially limited her ability to sleep, care for herself and her children, concentrate, and interact with others. For example, following her miscarriage, she could not sleep, “function,” or care for her children.

Furthermore, the employee testified that the building itself, not just specific coworkers, triggered debilitating anxiety.

The district court, which initially entered summary judgment in favor of the employer, focused on whether the plaintiff’s mental health conditions substantially limited the plaintiff’s ability to work, concluding that the employee did not demonstrate her impairment limited her ability to perform a class or broad range of jobs. However, the Court of Appeals for the Sixth Circuit (Kentucky, Michigan, and Tennessee) found this short-sighted approach to be erroneous.

This is a tricky case, but the takeaway is clear – spend less energy debating whether an employee has a disability and more effort on identifying whether a reasonable accommodation exists. And while you’re at it, make sure you are considering job reassignment as an accommodation and discouraging your employees from gossiping about each other while on a leave of absence.

DMEC’s 2025 Compliance Conference is right around the corner! TPG will be attending April 14-17, at the Hilton Columbus Downtown in Columbus, OH. Some of us TAM team members are excited Ohio State won the College Football National Championship, while others do not feel as triumphant. Please join me in avoiding anything and everything associated with Ohio State Buckeyes enjoying several days of education and networking opportunities in the leave and disability space! More details can be found here.