FAMILY LEAVE OPTIMAL COVERAGE ACT S.B. 332 (S-1) & 333:
SUMMARY OF BILL
REPORTED FROM COMMITTEE
Senate Bill 332 (Substitute S-1 as reported)
Senate Bill 333 (as reported without amendment)
Sponsor: Senator Erika Geiss
Committee: Housing and Human Service
CONTENT
Senate Bill 332 (S-1) would enact the "Family Leave Optimal Coverage Act" to do the
following:
-- Allow a covered individual to take up to five weeks of paid family leave within the first
year of the bill's enactment, up to the 10 weeks in a benefit year two years after the bill's
enactment, and up to 12 weeks following the two year period.
-- Prescribe the reasons for which a covered individual could take family leave, including
during certain life events and serious health conditions, a declared emergency, and
exigency leave, among other reasons.
-- Require employers to provide annually to employees written notice about family leave and
Family Leave Optimal Coverage (FLOC) benefits by January 31, and when an employee
was hired, requested family leave, or when the employer learned that the employee's
request for time off work could qualify for family leave.
-- Require FLOC benefits to be paid within 14 days of the claim being approved, and every
other week following that date.
-- Specify that a covered individual could not be paid for fewer than eight hours of leave
used in one week.
-- Prescribe the formula that the Department of Labor and Economic Opportunity (LEO)
would have to use to calculate FLOC payments.
-- Allow an employer to deduct from an employee up to 50% of the contribution required to
be remitted to the FLOC Fund.
-- Require an employer that employed 25 employees or more to remit 100% of the required
FLOC contribution and an employer that employed 25 employees or fewer to remit 50%
of the required FLOC contribution to the FLOC Fund.
-- Establish the maximum weekly benefit rate payable to a covered individual as 65% of the
State average weekly wage.
-- Prescribe payroll contribution requirements for employers, employees, and LEO.
-- Require an individual to certify family leave with LEO and include certain information based
on the type of claim.
-- Within a year of the bill's effective date, require LEO to establish procedures and prescribe
forms for benefit claims.
-- Require family leave that qualified under the Federal Family Medical Leave Act (FMLA) to
run concurrently with benefits under the FMLA.
-- Allow an employer to require FLOC benefits to be coordinated or paid concurrently with
payments made or leave taken in accordance with a provision of the employer's collective
bargaining agreement or paid family leave policy.
-- Allow a self-employed individual to elect coverage under the Act for at least three years.
-- Allow LEO to recover FLOC benefits paid to an individual under certain circumstances,
including if the individual filed a false claim.
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-- Prescribe rights for employees, including the right to request a hearing with LEO if FLOC
benefits were denied.
-- Prohibit a person from preventing or discouraging an employee from exercising a right
guaranteed under the Act.
-- Allow an individual to file a complaint with LEO regarding a violation of the Act within three
years of the violation and bring a civil action for civil damages, injunctive relief, or both.
-- Require LEO to order employers who infringed on an employee's rights under the Act to
remedy a violation or assess the employer a fine of up to $1,000.
-- Establish the FLOC Fund and prescribe which payments would have to be deposited or
spent from the Fund.
-- Allow employers to fulfill the requirements of the Act through a private plan.
-- Require a private plan to inform an individual who filed a claim that benefits would be
subject to the Federal Income Tax if the United States Internal Revenue Service (IRS)
determined such.
-- Before September 30 of each year, require LEO to submit a report to the Secretary of the
Senate and the Clerk of the House of representatives on the amount of FLOC benefits paid
and used for each year and specified demographic information of individuals who made
claims, among other things.
Senate Bill 333 would amend the Income Tax Act to include FLOC benefit deductions in the
definition of "taxable income".
Each bill would take effect January 1, 2024. Senate Bill 333 is tie-barred to Senate Bill 332.
MCL 206.30 (S.B. 333)
BRIEF RATIONALE
Currently, under the FMLA, eligible employees may take up to 12 unpaid work weeks in a
calendar year for certain events such as the birth and care of a newborn or for health
conditions. According to testimony before the Senate Committee on Housing and Human
Services, while many individuals benefit from the option to have time off, it is often not
feasible to go 12 weeks without pay, which may require employees to choose between caring
for a loved one or supporting their own or their family's livelihoods. Some believe that
employers should offer paid long-term leave options to their employees, and so creating the
FLOC system has been suggested.
Legislative Analyst: Eleni Lionas
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 FISCAL IMPACT
Summary of Revenue Implications
Under different Assumptions (dollars in millions)
Number of Employees
Assumption
Current Current
Fund Population Employment
Source of Revenue Impact/Assumption Affected Survey Statistics
State Revenue from contributions FLOC $17,199.0 $15,968.1
Maximum payable benefits at 20% utilization
.............................................................................. --- 11,861.4 11,012.5
Administrative costs (10% of maximum payable
benefits)
............................................................................ --- 1,186.1 1,101.2
Required buffer (35%)
.............................................................................. --- 4,151.5 3,854.4
Deduction of Employer Contributions
Employers Pay 50%, All file under CIT
.............................................................................. GF (516.0) (479.0)
Employers Pay 50%, 50% file under CIT & 50% file as
flow-throughs GF & SAF (440.7) (409.2)
Employers Pay 100%, All file under CIT
.............................................................................. GF (1,031.9) (958.1)
Employers Pay 100%, 50% file under CIT & 50% file as
flow-throughs GF & SAF (881.4) (818.4)
If Employee Contributions are Exempted
Employers Pay 50%, Employees pay 50%
.............................................................................. GF & SAF (365.5) (339.3)
If Benefits are Taxed (Revenue forgone if benefits
are exempt) GF & SAF $453.7 $421.2
Senate Bill 332 (S-1)
The bill would have a substantial fiscal impact on LEO, as LEO would have to promulgate
rules, administer the Act, regulate employers and employees, and educate the public on the
Act. These costs would include staff for the administration of the program, staff to oversee
and enforce the Act, costs to educate the public, and information technology costs. Education
costs would be capped at 5% of the FLOC Fund balance each year. These costs could be offset
to some degree by administrative or other fines that resulted from violations of the Act.
The bill would affect State revenue in two major ways: 1) it would increase State revenue
from contributions to the FLOC Fund and 2) it would decrease State revenue because
employers would be able to deduct FLOC contributions from their taxable income. The bill
appears to intend to exempt employee contributions and insurance benefits from taxation,
although the bill's language would not exempt employee contributions and would exempt
benefits only under Senate Bill 333. Exempting employee contributions would reduce State
revenue, while taxing benefits would increase State revenue. If benefits were exempt, the
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exemption would represent revenue forgone but not an actual loss of revenue not already
included under other revenue impacts.
The bill's potential revenue changes depend on a wide variety of assumptions, which are
detailed below and based on year-to-date available through October 2024. As a result, the
analysis presents potential impacts based on select illustrative assumptions. To summarize
the range of revenue impacts across all assumptions, the bill would generate approximately
$4.3 billion in contributions to the FLOC Fund and reduce tax revenue from employers by
between $110.2 million and $258.1 million in the first year of the program, assuming a full
calendar year of operation. As the bill's provisions change over time, contributions to the
FLOC Fund would rise to $13.6 billion and the revenue reduction from employers would
increase to between $348.7 million and $816.4 million. If employee contributions were
exempted, it would reduce revenue by between zero and $91.4 million in the first year and
would rise to $289.1 million per year by the third year, depending on the share of
contributions taken from employee wages. If benefits were taxed, it would generate
approximately $149.6 million in the first year, rising to $358.9 million by the third year, under
normal utilization and receipt of maximum benefits.
Background and Summary Information Relevant to the Fiscal Impact
The bill would restrict benefits to covered individuals, which would be defined as those who
have earned $3,000 or more in wages subject to contributions to the FLOC Fund and specified
self-employed individuals. Employers would have to make contributions to the FLOC Fund for
every employee. The bill would provide employers the option to take 50% of contributions
from an employee's pay. The bill would not indicate how individuals would demonstrate they
were a covered individual—regardless of whether the employer remitted contributions. The
bill would not require an enrollment process for employees (other than qualified self-employed
individuals who elected to obtain coverage), and it is unclear if the bill's requirement in Section
11 that "payroll contributions must be authorized for the exclusive purpose of financing the
payment of...the program" would be sufficient to create a link between employees and
employer contributions.
The bill would affect all employers and all employees. No exceptions would be provided based
on firm size or number of employees. With the exception of certain employers that provide
Medicaid home and community based services with funding from the Department of Health
and Human services, in which instance the State would have to make the payments on behalf
of the employer, and certain employers with approved private plans that provide at least the
same benefits as available under the bill, contributions would be required for all employees
regardless of their status as temporary employees, limited-term employees, or the number
of hours worked. Under the bill, employers with fewer than 25 employees would only be
required to make 50% of the required contribution, although as discussed below, the provision
would result in employers with fewer than 25 employees receiving an effective 33% reduction
in their required contributions (rather than 50%) and other employers paying 33% more than
would be required absent the provision.
Covered individuals would be eligible for benefit payments for a maximum of 5 weeks during
the first year of the program, 10 weeks during the second year of the program, and 12 weeks
per year thereafter. Benefit payments would equal 100% of the employee's wages but could
not exceed two-thirds of the State average weekly wage. As a result, if an individual made
$1,500/week and the State's average wage was $1,200 per week, then the benefit for that
individual's would total $800 (two thirds of $1,200) while an individual that earned $600/week
would receive a benefit of $600.
In determining contributions to the program, the required contributions essentially would be
what the State deemed was necessary to fund the benefits and administer the program,
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subject to certain provisions. In section 11, for the first two calendar years in which the
program operated, the Director of LEO could require employers to pay an amount that the
Director determined sufficient to fund benefits and administrative costs. After the second
year, contributions would be set at a level necessary to fund 135% of the benefits paid in the
prior year plus 100% of the prior year's administrative costs, minus any assets in the FLOC
Fund as of June 30. As a result, it is difficult to estimate the impact of the bill on employers,
employees, and State revenue. The results below depend on the validity of the assumptions
used to develop the estimates.
The Act would not exempt benefit payments from the income tax (although Senate Bill 333,
which is not tie-barred to the bill, would) or calculation of household resources, although it
would require employers to inform individuals filing a claim that the benefits would be taxed
at the Federal level if the IRS determined the benefits were subject to Federal income tax.
Employers likely would be able to deduct contributions from taxable income under the
corporate income tax (CIT) and other business taxes. The bill does not indicate if contributions
assessed against employee pay would be exempt from tax and/or would be taken on a pre-
tax or post-tax basis.
Data indicate that during a year, approximately 15 to 17% of employees take leave for a
FMLA-qualifying reason. Furthermore, one-third of those individuals take intermittent leave
under FMLA.
Determining Relevant Population Counts and Total Contributions
The bill would appear to make public employees eligible for benefits (they would not be
excluded by the bill unless they were employed by the United States government or covered
by the Railroad Unemployment Insurance Act) and to require public employers to make
contributions. Presumably, the bill also would require coverage of temporary employees, as
well as agricultural and migrant workers. As a result of the bill's ambiguity, it is unclear what
total represents the most appropriate estimate of covered individuals, especially given the
different surveys and data sources used to collect data on the number of employed individuals.
For example, data from the Current Population Survey (CPS) produces data used to estimate
the unemployment rate. The CPS data counts individuals (not jobs), so if an individual has
two jobs, the individual would appear as employed, but it would undercount the number of
jobs that would be relevant under the bill. Similarly, the CPS data count all self-employed
individuals, regardless of whether they would qualify under the bill. The methodology of the
CPS data means that migrant workers would not likely to be counted at all, that individuals
who are Michigan residents but work out-of-State would be counted, while out-of-State
residents who work in Michigan would not be counted.
In contrast, the Current Employment Statistics (CES) data count payroll positions. The CES
data resolve certain issues with the CPS data, such as those related to employee residency
or multiple jobholders; however, the data exclude self-employed workers and farm and
agricultural workers. The Quarterly Census of Employment and Wages (QCEW) generally is
regarded as being a more thorough and accurate data source because, instead of relying on
samples, it uses data for all workers covered by State unemployment insurance laws and thus
covers about 95% of all jobs; however, there are substantial lags in data availability; as of
the date of this fiscal note, preliminary October 2024 data were available from the CPS and
preliminary October 2024 data were available from the CES, the latest data available from
the QCEW was through preliminary June 2024. Furthermore, while agricultural workers are
included in the QCEW, the data only include those covered by State unemployment insurance
laws and will omit self-employed individuals and some farm workers, especially if they are
not covered by unemployment insurance laws.
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As a result, the analysis considers the following totals for the number of Michigan employees:
-- Total employment (including self-employed): 4,827,935 (CPS).
-- Total nonfarm payroll employment: 4,482,410 (CES).
-- Total private nonfarm payroll employment: 3,678,100 (CES).
-- Total agriculture/forestry/fishing/hunting workers: 33,787 (QCEW, based on year-to-date
average through January-June 2024) and uses an average of the CES and CPS employee
counts, or 4,655,173, for calculating the impact of the bill; no adjustments are made to
account for employment growth in future years.
According to data from LEO, the statewide average weekly wage totaled $1,259.91 in 2024.
The analysis below is based on the 2024 LEO data for the average wage and uses the
estimated year-to-date 2024 employee counts. As with employee counts, no adjustments are
made to reflect changes in employment demographics or wages over time. To the extent that
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