Employers Would Likely Foot the Bill for Trump’s Parental Leave Plan

President Trump’s latest budget proposal calls for 6 weeks’ paid leave for new parents. And while the employee wage replacement that comes with the leave would be paid out by states, experts say states will have to draw at least some of the funding from businesses.

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The program likely would lead to a significant tax on employers in the form of increased unemployment insurance (UI) taxes, according to Lisa Horn, Director of congressional affairs for the Society for Human Resource Management (SHRM).

Who Gets Leave?

An earlier Trump paid parental leave proposal made during his campaign appeared to exclude fathers, adoptive parents, and same-sex partners. The new proposal contains few details about eligibility but it does say the leave would be available to new mothers and fathers, including adoptive parents. It goes on, however, to say that it would ensure “all families” can afford to take time to recover from childbirth and bond with a new child without worrying about paying their bills.

The proposal does not set out any other eligibility requirements, such as job tenure (like the Family and Medical Leave Act does), full-time employment status, or an income ceiling. It also doesn’t say whether the law would include job protection for employees who seek parental leave or whether states would have to provide at least a certain percentage of income replacement. Those details may be left to Congress (because this plan would require new federal legislation) or individual states.

Several states already have programs with some similar features, but they were created through existing temporary disability insurance programs and funded by employee payroll taxes. The programs generally offer between 55% and 66% of an employee’s pay, subject to a cap.

And Who Pays?

According to Trump’s proposal, the program would use the UI system as a base and expenses would be offset by reforms to that system. Those changes include reducing improper payments, helping unemployed workers find jobs more quickly, and—most notably—encouraging states “to maintain reserves in their Unemployment Trust Fund accounts.”

The problem with that third item is that, according to the U.S. Department of Labor, many states depleted those trust funds during the recession. By the beginning of 2017, only 21 had reached the “minimal level of adequate solvency,” according to the department’s State Unemployment Insurance Trust Fund Solvency Report 2017.

To resolve that issue and also be able to take on new claimants, the administration would require states to increase their UI payroll taxes, according to the Committee for a Responsible Federal Budget. And, in most states, those taxes are paid solely by employers.

Horn agreed with that assessment. “You can easily get to a scenario where this is going to lead to a significant tax increase on employers,” she told BLR^®.

SHRM also has concerns with intertwining parental leave and UI, Horn said. “This is a serious departure from the original intent of and purpose of the UI system,” whose purpose is to provide wage replacement to involuntarily unemployed workers, she said. Claimants must be able, available, and willing to work; with someone taking parental leave, that’s not necessarily the case. Adding leave-takers to the claimant pool jeopardizes benefits for the unemployed, she said.

Reactions

Trump’s plan has received little praise from either side of the aisle. Democrats in Congress say it doesn’t go far enough. Republican lawmakers told The Hill that while providing assistance to working parents is a “worthy endeavor,” they’re concerned with the costs and about adding more federal mandates for employers.

The National Partnership for Women & Families, responding to the proposal, voiced support for the Family And Medical Insurance Leave Act instead. That bill that would provide 12 weeks’ paid leave for a variety of reasons. Wages would be replaced at 66% and would be funded through both employee and employer contributions.

And SHRM has its own proposal: a federal law that would allow employers to opt into a nationwide leave program and, in turn, receive permission to opt out of state and local requirements. For more information on that proposal, see Relief from the Leave Law Patchwork Could Be on Its Way.

Kate McGovern Tornone is an editor at BLR. She has almost 10 years’ experience covering a variety of employment law topics and currently writes for HR Daily Advisor and HR.BLR.com. Before coming to BLR, she served as editor of Thompson Information Services’ ADA and FLSA publications, co-authored the Guide to the ADA Amendments Act, and published several special reports. She graduated from The Catholic University of America in Washington, D.C., with a B.A. in media studies.