Paid Leave Bill Threatens Employers and Workers with Billions in New Taxes

Legislation creating a paid leave entitlement program would require billions of dollars in new taxes levied on all California employers and their workers. It is high on the list of job-killing bills pending as the California Legislature works toward the scheduled August 31 adjournment of the 2001-02 session.

The coalition against SB 1661 (Kuehl) includes the California Chamber of Commerce, the California Taxpayers' Association, the California Manufacturers and Technology Association and numerous businesses (see SB1661CoalitionOpposition.pdf ).

SB 1661 would establish a 12-week paid family leave entitlement program for all California workers, whether employed by government or the private sector. It would be available to care for ill children, spouses, parents, or domestic partners, as well as for leave for the birth, adoption, or foster care placement of a child.

To pay for the mandated Family Leave Temporary Insurance (FTDI) paid leave entitlement program, SB 1661 institutes two new taxes. It increases the current state disability insurance (SDI) tax formula and mandates a 14 percent "administrative fee" on large self-insured employers.

A $2 billion tax bill. Along with increasing the maximum SDI tax rate, SB 1661 establishes the new FTDI tax that will be assessed in addition to SDI tax contributions. As a result, California workers will pay SDI/FTDI taxes of $698 in 2004 and $726 in 2005 – a 67 percent increase in worker SDI taxes in 2004 alone. Moreover, SB 1661 mandates that employers also match dollar for dollar the higher worker FTDI premium amount. By 2005, the combined tax burden of the paid leave entitlement on California employers and their workers will reach $2.22 billion. (See table below.)

SB 1661 (KUEHL) PAID FAMILY LEAVE WILL COST CALIFORNIA EMPLOYERS and WORKERS BILLIONS in NEW TAXES
	2004	2005
Maximum SDI Weekly Benefit Amount	$728	$840
Taxable Wage Ceiling	$68,829	$79,418
Tax Rate	1.5% SDI + .05% FTDI = 1.55%	1.5% SDI + .05% FTDI = 1.55%
California Average Taxable Wage+	$45,024	$46,825
New FTDI/SDI Tax on Average Annual Wages per Worker	$698	$726
Average Annual FTDI Worker Tax *	$45	$47
New Maximum Annual SDI/FTDI Worker Tax	$1,066	$1,230
New Maximum FTDI Annual Worker Tax	$104	$123
SB 1661 Median Employer Tax (per worker)	$75	$85
Annual SB 1661 Employer Tax Burden	$ 975 Million	$1.11 Billion
SB 1661 Overall Tax Burden on California Workers and Employers **	$1.96 Billion	$2.22 Billion
+Average annual taxable wages calculated by using CA 2001 average weekly wage data reported to the U.S. Department of Labor and adjusting upward 4% annually beginning in 2001.
*SB 1661 provides for an unlimited, potentially retroactive FTDI tax increase beginning October 2004. Estimated FTDI tax contributions are increased by .05% to account for this variable.
Overall tax burden calculated by adding the median of all FTDI taxes paid by California workers plus the equal amount of employer FTDI taxes as mandated by SB 1661**'s requirement for equal FTDI tax payments by both workers and employers. Note: In 2002, California workers covered by state SDI program is approximately 13 million, according to EDD.

SB 1661 erases important employer rights contained in current state and federal family leave laws. Current state and federal family leave laws only apply to employers with 50 or more workers and permit qualified employees to take up to 12 weeks of unpaid family leave. The leave is unpaid to prevent abuse of the leave laws. SB 1661 eliminates the 50 or more worker coverage level requirement; eliminates requirement of 1,250 hours on the job in the previous 12 months before eligible for leave; eliminates employer right to designate leave as family leave; only permits certification of worker or family member need for leave to go to the Employment Development Department (EDD); and eliminates important notification requirements.

Hurts small businesses. California small businesses are harmed by the elimination of the size requirement. Keep in mind that SDI benefits are portable and move with the worker if the worker changes jobs. If a worker has sufficient SDI contributions, SB 1661 entitles a worker just hired on Monday by a very small company to take up to 12 weeks of paid leave beginning Tuesday to care for a family member.

New paid leave benefits, paid for by new mandated taxes, would be impermissible under federal law. The federal Employment Retirement and Income Security Act (ERISA) forbids states from establishing mandated employee welfare benefits such as those contained in SB 1661. A paid leave benefit it is an employee welfare benefit under ERISA. Regardless of how the benefit is created or funded, it would still be an employee benefit under ERISA and would therefore be preempted.

SDI Trust Fund is nearly bankrupt. According to EDD, the SDI Trust Fund reserve adequacy level has dropped alarmingly. Recent legislation permanently linked the level of SDI benefits to workers' compensation benefits. Enactment of AB 749, Ch. 6, Statutes of 2002 steeply increased both benefits levels. EDD information shows that as of December 31, 2001, the SDI Trust Fund reserves plummeted to only 15.4-a drop of nearly 70 percent. Even the most optimistic estimates by EDD indicate SDI Trust Fund reserves to be less than 30% for the next several years. This level of reserves is well below the 45% reserve level mandated by law for fund adequacy.

Legislation like SB 1661 makes California less competitive with similarly situated businesses in other states. California employers believe that bills like SB 1661 make it even more difficult, and certainly much more expensive, to do business in California.