Many small businesses face important challenges that larger organizations do not simply because of access to resources. Typically, established companies are more effective at raising capital, realizing efficiencies, having more purchasing power, greater name recognition, and more access to talent. Talent acquisition is one area where many Denver small businesses struggle. This is especially true when it comes to compensation and benefits packages. An important lesson learned from the pandemic is there will be times when employee benefits, specifically paid sick leave, are extremely important. Yet, these companies face the challenge of cost and impact on operations. The reality is that many simply cannot afford the high cost and are left in a difficult spot.
The good news is that Colorado small businesses will finally overcome this challenge. In November 2020, Proposition 118 was approved by voters. It created the Family and Medical Leave Insurance (FAMLI) program which ensures all workers have access to paid sick leave. The new benefit will allow
employees to take time off during important life changes such as a serious health condition, pregnancy, birth of a child, adoption, or foster care. Starting in January 2023, employers will need to register and start making required payments to the program. To help clients, prospects, and others, Hanson &
Co has provided a summary of the key details below.
What is Colorado FAMLI?
It is a state-run program that offers Colorado workers twelve weeks of paid family and medical leave funded through payroll deductions. This premium is paid partially by employers and employees, where employees are not required to pay more than 50% of the premium. Under eligible circumstances,
employees can take leave for pregnancy, childbirth, or other serious health conditions for up to sixteen weeks. Additional time off is available in certain circumstances.
While benefits will not be available until 2024, employers must collect premiums through a payroll deduction starting on January 1, 2023. Most will need to deduct payment from all employees including full time, part time, and seasonal workers. It is not possible to collect missed premiums from employees in later pay periods. While the deduction amount for each employer is different, especially for those with less than 9 employees, the total premium amount is limited to .9%. Premiums may be adjusted in future years but are capped by law at 1.2%
FAMLI Premium Calculation
After registering, calculating the amount of the premium which must be made is the most important step. The amount of the premium deduction for the employer is determined by the number of employees and the amount of pay. Premiums are due on wages up to the federal Social Security Wage
Cap ($160,200 in 2023). Eligible wages include:
- Payments defined as wages under the Federal Unemployment Tax Act (FUTA) including tips
- Employee contribution to 401(k) or IRC 408 simplified Retirement Plans
- Disability payments paid in first 6 months after an employee worked for you
- Employer contributions to a Medical Savings AccountEmployee-matching contributions into IRC 219 simplified employee pension plan
- Payments made by a public school or 501(c)(3) into annuity contracts or by the governmental entity because of a salary-reduction agreement
- Payments for personal services, including anything other than cash that has cash value, like a housing allowance.
- Employee contributions to a Salary Reduction Simplified Employee Pension Plan (SAR/SEP)
- 125 Cafeteria Plan if cash is choseThe premium amount is set to .9% of employee wages with .45% paid by the employee and .45% paid by
employer.
It is important to note that businesses with less than 9 employees are not required to cover the employer portion of the premium. However, they are still responsible for collecting the employee portion. In addition, self-employed individuals, that have elected to participate, only need to remit the employer’s portion (.45%) of the premium for three years.
Determining Employee Headcount
To determine the number of eligible employees, a company must count the number of workers on the payroll for a total of 20 calendar weeks during the preceding year. This rule applies even if an employee is part-time, seasonal, and only works one or two days a week. Remote employees should be included in this calculation. The rules require an employer to count remote workers, even if outside the state when determining premium responsibility. However, there is no requirement to collect the premium for out-of-state employees.
In addition, employers are responsible for submitting a quarterly wage report. This can be done by individuals entering the information on the FAMLI site or by submitting a bulk upload with relevant information.
The payment of quarterly premiums can be made online, (FAMLI+ Employer Account), through ACH Credit, Payment by Check, or through online bill pay. Currently, the payment instructions are not yet available but are expected to be published in the coming weeks.
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Hanson & Co works with middle-market companies and high-net-worth individuals in Denver, Colorado, and across the country. Regardless of the complexity of your need, our team is ready to help you. Please complete the form below, and we will follow up with you shortly.