On September 29, 2024, California Governor signed AB 2123 into law, bringing significant changes to the state’s Paid Family Leave (PFL) program. Starting January 1, 2025, employers will no longer be able to require employees to use up to two weeks of company-provided vacation time before they start receiving PFL benefits. This shift is part of a broader trend of modifications to the state's family leave policies, adding another layer of complexity for businesses in the state.
For more information on the Paid Family Leave (PFL) program and its potential impact on your organization, contact our Managing Partner, Richard Liu, at richard.liu@consultils.com.
Overview of AB 2123
AB 2123 eliminates the ability for employers to mandate that employees use accrued vacation time before accessing PFL benefits. Previously, employers could require employees to exhaust up to two weeks of vacation before receiving state-paid PFL benefits, which provide wage replacement for eligible employees taking leave for:
Caring for a seriously ill family member (e.g., child, grandparent, parent, spouse, or domestic partner);
Bonding with a newborn or newly adopted child within one year of birth or placement; or
Managing a qualifying exigency related to a family member’s active duty in the U.S. Armed Forces.
This change means that beginning January 2025, employees will have the ability to retain their vacation time while receiving PFL benefits, which are paid through state insurance or an employer's voluntary plan.
Employer Considerations: Impact of the Change
AB 2123 presents both challenges and opportunities for employers, particularly in the following areas:
Vacation/PTO Management
Previously, requiring vacation usage helped employers manage vacation accruals and prevent employees from returning from leave with substantial banked time. With this option removed, employers may need to revise their vacation policies and manage future requests for time off more carefully.
Employee Benefits Contributions
During PFL leave, employers must maintain employee benefits, such as health insurance, under both federal and state leave laws. Without a paycheck during PFL, collecting employee contributions toward benefits becomes a challenge. Allowing employees to “top off” their PFL benefits with vacation or PTO pay could provide a solution, ensuring employers can continue payroll deductions for contributions.
San Francisco’s Paid Parental Leave Ordinance (PPLO) Compliance
For employers subject to the San Francisco PPLO, which requires supplementing PFL benefits for new child bonding, AB 2123 may provide some relief. Employers can apply up to two weeks of accrued vacation toward meeting their PPLO obligations, helping to reduce the need for additional compensation.
Next Steps for Employers
To prepare for the changes coming in January 2025, employers should:
Review Leave Policies: Ensure your vacation, PTO, and leave policies align with AB 2123. Plan for how the removal of the vacation requirement may affect vacation accruals and time-off requests.
Assess Benefits Contribution Collection: Consider implementing a system that allows employees to use vacation or PTO to supplement PFL benefits, making it easier to collect benefits contributions during leave.
Plan for PPLO Compliance: For San Francisco-based employers, review how AB 2123 could impact your obligations under the PPLO. Prepare to adjust your approach to supplemental pay.
Conclusion
AB 2123 represents a significant shift in California’s Paid Family Leave program. Employers must act now to update their leave policies and ensure compliance with the new law. By preparing in advance, employers can navigate these changes smoothly and continue to support employees during family-related absences.
For more information on the Paid Family Leave (PFL) program and its potential impact on your organization, contact our Managing Partner, Richard Liu, at richard.liu@consultils.com.
Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.
Richard Liu, Esq. is the Managing Counsel of ILS. He serves clients as a management-side defense lawyer specializing in employment and business litigation. Richard is also an expert on litigation prevention and compliance. He regularly advises Fortune 500 companies and startups on employment, labor, and commercial matters.
Email: richard.liu@consultils.com | Phone: 626-344-8949