An Update on Maryland’s Paid Family and Medical Leave Insurance (FAMLI) Law

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As Maryland employers should be aware, the General Assembly passed a law in 2022 that set up a paid family and medical leave insurance program (known as FAMLI). The program will apply to all employers with employees in Maryland. It will provide eligible employees with 12 weeks of paid family and medical leave, with the possibility of an additional 12 weeks of paid parental leave (for a possible total of 24 weeks of paid leave). This $1.6 billion program will be administered by the State and funded by contributions from employers and employees. Contributions will begin on July 1, 2025, with benefits starting July 1, 2026.

We summarized the extensive provisions of the original law in our April 12, 2022 E-lert. Last year, the General Assembly passed revisions to the law that delayed implementation, capped the total contribution amount at 1.2% of wages, and split the contribution 50-50 between the employer and employee, as detailed in our April 12, 2023 E-lert. This year, there were additional amendments to the law that further delayed implementation and clarified that employees must perform services under employment located in the State in order to be eligible for benefits, among other things, as we discussed in our April 10, 2024 E-lert.

The Maryland Department of Labor’s FAMLI Division is in the process of developing regulations to implement the law. In the interim, it is providing resources to help employers prepare for FAMLI. It has created a website with a specific employer-focused webpage, issued FAQs for employers and, most recently, held a webinar. Among the significant points discussed during the webinar, with further clarification from us, are the following:

  • FAMLI regulations: The FAMLI Division previously issued “draft” regulations, as discussed in our January 30, 2024 E-lert. The law was subsequently amended during the 2024 General Assembly Session, as mentioned above, and the FAMLI Division will be issuing an updated version of their “draft” regulations some time in the next few weeks. The public will be able to offer comments, which the FAMLI Division will take into consideration before formally issuing proposed regulations later this year.
  • Employer portal: The FAMLI Division is in the process of developing a portal through which employers will register with an email address for communications, and will submit all required information and contributions.

The FAMLI Division will also provide information to employers about employee claims through the portal. Once an employee fills out an application on the FAMLI portal, the FAMLI Division will immediately notify the employer through the registered email address. The employer then has 5 days to respond and provide information that could impact the benefits determination, such as the employee took employer-provided Alternative FAMLI Purpose Leave (discussed further below) already, or that the employee took FMLA leave and failed to apply for FAMLI benefits although they were notified of their right to do so.

  • Quarterly reports: Employers will submit wage and hour reports for all covered employees on a quarterly basis through the portal. The FAMLI Division will use that information to determine an employee’s eligibility and benefit amount upon receipt of that employee’s application for benefits.
  • Contribution schedule: Contributions will be made on the same schedule as unemployment insurance contributions. These are required quarterly on April 30, July 31, October 31, and January 31.
  • Contribution amount: The Secretary of Labor had previously announced that the total contribution amount for the first year of contributions would be .90% of each employee’s wages up to the Social Security cap (which is set annually and is currently $168,600). Although the 2024 amendments give the Secretary the ability to re-set that amount, the FAMLI Division stated that this announced rate is unlikely to change before contributions begin in 2025.
  • Small employers: Those with fewer than 15 employees will not be required to make the employer contribution, although their employees will still be required to make their contributions and will be eligible for FAMLI benefits/leave. In determining the 15-employee threshold, all employees – including those employed outside of Maryland – are counted. The FAMLI Division will use a 4-quarter average for the prior year, and re-evaluate on an annual basis.
  • Employees working outside Maryland, in whole or in part: Only employees who perform services under employment located in the State are covered by the FAMLI program, and the FAMLI Division will apply the localization rules for unemployment insurance to determine if an employee who is physically located outside of Maryland meets this requirement. For the most part, if an employer is paying unemployment insurance contributions in Maryland for an employee, that employee is covered by FAMLI. There may be other employees who are not covered by UI but are still covered by FAMLI, however.

The UI localization rules cover several different out-of-state situations. For employees who physically work, at least in part, in Maryland, the rules provide that an employee’s service is localized within Maryland if it is performed (1) entirely within Maryland or (2) both within and outside Maryland, as long as the non-Maryland service is only incidental (meaning temporary or transitory, or consisting of isolated transactions) to the service performed in Maryland. The factors for determining if service is incidental or transitory are: (1) the intention of the employer and employee as to whether the service is an isolated transaction or a regular part of the employee’s work; (2) the intention as to whether the employee will return to Maryland after completing their out-of-state work; and (3) the length of service within Maryland as compared to outside Maryland.

For employees who physically report to a Maryland location but may then travel outside Maryland to perform work, the UI localization rules provide that they will be covered by FAMLI if their service is not localized in any state, they perform some services in Maryland, and their base of operations is in Maryland. The “base of operations” is a more-or-less permanently fixed location from which the employee starts work and to which they customarily return to receive work instructions, obtain supplies, repair equipment, or perform other functions necessary for their job. This can be the employee’s business office, or an employment contract may set forth a particular place.

The UI localization rules further provide that a remote employee will also be covered by FAMLI if their employment is not localized in any State and they have no base of operations, or the base is in a state where they perform no service, or the base moves from state to state – but their service is directed or controlled from Maryland.

And if none of the above rules establish where the remote employee’s employment is based, the UI rules provide that they will be covered by FAMLI as long as they live in Maryland and perform some services in Maryland.

  • Employer-provided leave: The law is clear that employers cannot require employees to use PTO, sick leave, or vacation before or while using FAMLI leave, but employers may permit employees to top off their FAMLI benefits with such leave to reach 100% of their pay.

If an employer provides “Alternative FAMLI Purpose Leave,” which is leave that is specifically limited to a FAMLI purpose (like paid parental leave), the employer may require employees to use that concurrently. In the webinar, the FAMLI Division gave the example that if an employer offers 6 weeks of fully paid parental leave, it can require the employee to take that leave first, and then when the employee applies for FAMLI, they would be eligible for only 6 weeks of FAMLI benefits rather than the full 12.

As for Short-Term and Long-Term Disability programs, the FAMLI Division asserted that FAMLI is primary, with STD and LTD used only to get up to full wage-replacement. Because that is not how STD and LTD currently operate (with most plans only providing 2/3 of wages), the Division believes the STD and LTD market will evolve to achieve this result.

  • Equivalent Private Insurance Plans: Employers must apply and be approved by the FAMLI Division to use an EPIP. There are two options.

First, employers can purchase a previously-approved plan through a private insurance company. The FAMLI Division noted that insurance code requirements will apply to such plans, and there may be employer obligations under the insurance code that are separate from FAMLI.

Second, employers may implement a self-insured plan that meets or exceeds the requirements of the FAMLI law, as reviewed and approved by the FAMLI Division. Employers will still be required to submit quarterly wage and hour reports, and will also submit claims information on a quarterly basis that will be audited by the State. In addition, they may be required to pay a fee for having such a plan (in addition to onerous bonding and other requirements as we previously discussed in our January 30, 2024 E-lert on the draft regulations).

As we have previously noted, the guidance on FAMLI is ever-changing, and we will continue to keep you posted on any developments.