Employers can easily be confused about their obligations under the Federal Family and Medical Leave (FMLA) Act, state-paid family and medical leave programs, and employer-provided paid leave time for employees. The DOL has provided some guidance to help employers properly handle payroll and comply with federal and state law. The following is adapted from this guidance.
Which programs are involved?
These include:
- Federal Family and Medical Leave Act, which requires employers with 50 or more employees in 20 or more workweeks in the current or preceding year to provide up to 12 weeks of unpaid leave time each year for family and medical reasons (up to 26 weeks for an employee who is the spouse, son, daughter, parent, or next of kin of a covered servicemember with a serious illness or injury).
- State family and medical leave programs (PFML), giving paid benefits for certain leave (rules vary by state and some cover very small employers). A map of states with PFMLs is here. Note: Some states, such as Maine and Minnesota, have unpaid leave programs.
- Employer-provided paid time off. This covers accrued vacation, sick days, and personal days.
- Other programs. Paid time off may be covered by workers’ compensation or a disability benefits plan.
How to handle leave time for payroll purposes
It all depends on the situation—what’s going on with the employee (and family), whether there are state laws, and whether there are other sources for benefits (e.g., accrued pay; workers’ comp).
Federal law allows employees to use their accrued employer-provided paid leave for their unpaid time off under FMLA; it’s in the statute. This is referred to as “substitution.” No confusion here.
But what if… The following situations show the results that follow based on the facts and circumstances.
- An employee takes leave under FMLA and receives payments under a disability benefit plan or workers’ compensation program. If the leave also qualifies as FMLA leave due to the employee’s own serious health condition, it must be designated by the employer as FMLA leave and counted against the employee’s FMLA leave entitlement. If the employee has both employer-provided paid leave and disability or workers’ compensation benefits, the employer and the employee may mutually agree, where state law permits, that the employer-provided accrued paid leave will supplement such benefits. For example, if a disability or workers’ compensation program only provides replacement income for two-thirds of an employee’s salary, the other third can come from employer-provided accrued leave.
But state programs can complicate things.
- An employee takes leave under a state or local paid family or medical leave (PFML) program and the leave is covered by the FMLA. It must be designated as FMLA leave. The employee must be given notice of the designation, which should include the amount of leave to be counted against the employee’s FMLA leave entitlement.
- An employee, during leave covered by the FMLA, receives compensation from a PFML program. The FMLA substitution provision does not apply to the portion of leave that is compensated. The employee cannot unilaterally choose to apply accrued leave benefits during this period. Once the PFML ends and there’s still time under FMLA, then accrued leave benefits can be used.
- An employee uses PFML under circumstances which do not qualify as FMLA leave. The employer can’t count the leave against the employee’s FMLA leave entitlement. For example, if a state paid family leave law allows for paid leave to care for a family member with a medical condition that is not an FMLA-qualifying serious health condition or serious injury or illness, leave taken under such circumstances does not count against the employee’s FMLA leave entitlement.
- An employee’s leave under a state or local paid family or medical leave program ends before the employee has exhausted the full FMLA leave entitlement. The employee is still entitled to the protections of the FMLA. This is the same rule that applies to workers’ compensation benefits.
Tax treatment
There’s a federal tax credit in 2025 for giving paid family and medical leave. An employer must give at least 2 weeks of pay under a written plan, and the pay must be at least 50% of regular earnings. Amount of the credit ranges from 12.5% to 25% of the paid leave, depending on the percentage of pre-leave wages being paid. The credit can only be used for an employee earning up to a set limit.
But no federal tax credit can be claimed if employers are required by state law to provide paid leave.
Final thought
When an employee feels leave has been unfairly handled, he or she can file a complaint with the DOL, which starts an investigation. This can entail onsite visits to employers and examining their employment paperwork. Violations can result in fines. To avoid complaints and investigations, follow the rules. If you’re unsure of your obligations, check with an employment law attorney.
For additional information on employment law, see this list of blogs.
