Colorado’s Prop 118 and Its Impact on Employers

There are times in life where you need to take leave from work. Whether you’ve just had a child or need to attend to a sick parent, having the ability to take time off without losing your job is a core fundamental of modern labor laws worldwide. However, the United States is the only country out of 41 countries that lacks paid parental leave, according to the Pew Research Center. While the federal government has avoided dipping its toes into this hotbed issue, more legislators are taking matters into their own hands at the state level.

This November, Colorado voters passed Proposition 118 — a new paid family and medical leave law. Although 8 other U.S. states have family and medical leave laws that are over and above what is required by the federally mandated Family and Medical Leave Act of 1993, Colorado is the first state to pass such a plan through a voter proposition.

This historic measure requires employers to provide 12 weeks of paid time off to workers for childbirth or other family emergencies. The pay would top out at 90% of workers’ normal earnings. In contrast, FMLA requires employers to allow employees to take up to 12 weeks of time off, unpaid. 

Although 8 other U.S. states have family and medical leave laws that are over and above what is required by the federally mandated Family and Medical Leave Act of 1993, Colorado is the first state to pass such a plan through a voter proposition.

57% of voters passed the measure, and benefits will start in 2024 at a cost of $1.3 billion. The Colorado Department of Labor and Employment will collect the money starting January 2023 via the payroll tax.

Where does the money come from?

While 12 weeks of paid family and medical leave sounds great on paper, the money has to come from somewhere. In this case, Coloradans are going dutch.

Workers will have to pay a 0.45% premium on their wages with their employer matching that amount for a total of 0.9%. To put that in perspective, an employee earning $52,000 a year would pay $234 in premiums per year. Their employer would also pay $234 per year.

Proponents of this bill feel that the tax is well worth it — as it allows new parents time to bond with their child and those with family emergencies the ability to care for their loved ones without financial stress.

Not all workers will receive the same amount of financial benefits, however. The lowest earners will get up to 90% of their weekly pay while higher wage earners could receive merely 37% of their pay.

Proponents of this bill feel that the tax is well worth it — as it allows new parents time to bond with their child and those with family emergencies the ability to care for their loved ones without financial stress.

How Prop 118 will impact employers

Whenever a new law passes that affects payroll, it can complicate things. Prop 118 is no different. Here are some fast facts about how employers could be impacted:

• Under the new proposition, employees who earn $2500 per month in wages after 6 months will have to contribute to the premium
• Small businesses that employ less than 10 workers are exempt from the premium
• Employees who work for an exempt employer may still have to pay their 50% if they meet requirements
• Enrollment, collection, and submission of the employee premium are the employers’ responsibility
• Local governments and school districts would be able to opt out of the public program, while state employees would still be included
• Employers with a paid family and medical leave program that meets minimum requirements do not have to participate
• Employers that choose to purchase paid leave insurance on the private market would not have to participate
• The employer-employee contribution could increase up to 1.2% if there is a surge in demand
• The state will hire roughly 200 employees to evaluate applications for this program and to calculate benefits

Looking ahead

With the passing of Colorado’s Proposition 118, employees in Colorado who have worked for an employer for at least half a year making at least $2500 in wages are eligible to receive up to 12 weeks of paid family leave. This benefit comes at a cost however to both employees and employers with a 0.45% payroll premium being tacked on to both parties for a total of 0.9% tax. This equates to roughly $234 per year for an employee in the $52,000 per year pay bracket.

Under the bill, the Colorado Department of Labor and Employment will collect the money starting January 2023 via the payroll tax with an estimated cost of $1.3 billion. According to experts, state spending will increase by $3.2 million in 2021-22 and $48.6 million in 2022-23.

Many business leaders in Colorado opposed this bill, saying it may prevent businesses from growing to control premium costs. On the other hand, proponents of this bill feel that the tax is well worth it, as it allows hard-working employees time to take care of their families which they wouldn’t be able to afford to do otherwise.