The Gift That Keeps Giving or a Lump of Coal? California SB 951's Changes to SDI and PFL

by Shelby Felton, Esq. - Director and Product Compliance Counsel

December 13, 2023

 

As we previously blogged about here, while the governor signed California SB 951 back in September 2022, its PFML gifts are now ready to be opened along with the presents to be opened for the December holidays.

California's State Disability Insurance program (SDI) covers an employee's own non-work-related injury or illness (including pregnancy), and its Paid Family Leave program (PFL) covers an employee's leave to care for or bond with a family member. California offers both a state administered plan (which most employers participate in) and a voluntary plan.

The taxable income cap for CA SDI and PFL is being eliminated for the state plan.

SB 951's first PFML gift is eliminating the taxable income cap or wage cap for contributions effective January 1, 2024. Currently, employees contribute .9% of weekly wages up to $1,378.48 per year. This cap is based upon the 2023 taxable annual wage income cap of $153,164 multiplied by the 2023 contribution percentage of .9%. The removal of the cap beginning 2024, means that employees will continue to pay a contribution rate, but without an annual limit. The contribution percentage is still subject to change on an annual basis.

For example, if Alex earned $100,000 in 2023, Alex contributed 0.9% of salary, or $900 (noted as CASDI tax on a paystub) towards SDI/PFL for the year. If Barrett earned $300,000 in 2023, they paid 0.9% of their salary up to the maximum wage base of $153,164 for a maximum annual withholding of $1,378.48 ($153,164 x 0.9%). It is those maximums that are being eliminated in 2024.

California's Employment Development Department (EDD) recently announced that the SDI/PFL withholding rate will increase to 1.1% in 2024. Therefore, Alex, earning $100,000, will pay $1100 ($100,000 x 1.1%) for SDI/PFL in 2024, a 22% increase. However, because of the elimination of the wage cap, Barrett, earning $300,000, will pay $3,300 ($300,000 x 1.1%) in SDI/PFL tax, almost double the amount they paid in 2023, or a 139% increase. High wage earners like Barrett will likely view this as a lump of coal, not a gift.

Although it didn't come with a bright red bow, the EDD also recently provided the Voluntary Plan Community with the gift of guidance that voluntary plans may retain the wage cap for plans with an effective date of January 1, 2024, or later. However, it is the employer's responsibility to ensure that the voluntary plan has sufficient funds to meet the increased benefits effective January 1, 2025 (covered below). Employers should include in their Plan Text Provisions their specified wage ceiling and the maximum employees' contribution withholding amount and notify their employees accordingly. Retaining the wage ceiling does not qualify as a "greater right" as required to have a voluntary plan. The practical meaning of this guidance is that employers with a large number of high wage earners may want to seriously study the pros and cons of moving from the state plan to a voluntary plan.

California has not yet updated its website to provide this information and stated that it would also update the Employer's Guide to Voluntary Plan Procedures (DE 2040), the Plan Text Provisions (DE 2008), and the Voluntary Plan Security Review Worksheet (DE 2544SRW).

The benefit rate for CA SDI and PFL will increase.

Currently and through 2024, California SDI and PFL benefits are paid on a sliding scale from 60-70%, the benefit percentage is calculated based upon the eligible employee's wages in the base period which is the 5 to 18 months prior to their claim start date. Within that base period, the quarter with the highest earnings will determine whether the employee receives 60% or 70% of their regular wages. Based on the Governor's signature on SB 951, through the end of 2024, if the highest quarterly earnings are less than $929, the weekly benefit amount is $50; between $929 and $7,154.32, the weekly benefit is approximately 70% of earnings; and if the earnings are more than $7,154.33, the benefit is approximately 60% of earnings.

The second PFML gift from SB 951 is that weekly benefit payments to employees will increase to 70-90% of their regular wages beginning January 1, 2025. This means that generally if an employee earns 70% or less of the state average quarterly wage, they'll receive 90% wage replacement. An employee that earns more than 70% of the average quarterly wage may receive up to 70% wage replacement. It is this increase in benefits that California believed necessitated the elimination of the contribution wage cap in 2024, the additional contributions are needed to fund the increased benefits in 2025.

Summary

Even if you don't want to touch SB 951 with a 39 ½ foot pole, it is time for employers to implement its 2024 contribution increases that will fund its 2025 benefit increases.

Happy Holidays from California!

Reliance Matrix Can Help!

More helpful than Santa's elves or reindeer, Elf On The Shelf, or Mensch On A Bench, Reliance Matrix offers employers leave administration, including state paid family and medical leave solutions and accommodation services. For more information, contact your Reliance Matrix account manager or send us a message to [email protected].

Through its insurance and administrative services entities, Reliance Matrix offers integrated leave management services involving the FMLA, state-mandated paid family and medical leave and accommodation solutions. Product features and availability may vary by state. For more information, please contact your Reliance Matrix account manager, or reach us at [email protected].