Colorado is among a handful of U.S. states operating on the cutting edge of various employee pay, benefits, and mobility rights initiatives. We previously blogged about a few of these initiatives, including Colorado’s recent enactment of criminal penalties for enforcement of overbroad non-competition agreements, as well as the Colorado Equal Pay For Equal Work Act, which among other things requires employers with at least one employee in Colorado to be transparent about salary expectations for new job openings that could be performed in Colorado.
Another such initiative, the Colorado Paid Family and Medical Leave Insurance Act (“PFML”), which was approved by Colorado voters in the 2020 election cycle, has come under recent attack.
As written, the PFML law would entitle Colorado workers to annually take up to 12 weeks of paid family and medical leave. Under the law, leave is paid for by employer and employee contributions in the form of payroll deduction premiums. Employees cannot begin using benefits until 2024, but the payroll deductions necessary to fund the program are slated to begin on January 1, 2023. Importantly, employers with fewer than 10 employees are not required to pay the premiums, and certain employers (local governments, independent contractors, sole proprietors, partners, and joint venturers) are not required to participate in the program at all. Based primarily on these differences in payroll deduction obligations, the Colorado Supreme Court recently granted a petition in the case of Chronos Builders, LLC vs. the Colorado Department of Labor & Employment, Division of Family and Medical Leave Insurance to decide whether the Act violates the Colorado Taxpayer Bill of Rights (TABOR).
On one side of the dispute, Chronos Builders is an employer who argues that the paid leave act violates TABOR. The company contends that TABOR requires that for any income tax law change, taxable net income is required to be taxed at one rate, with no added taxes or surcharges. Accordingly, the argument goes that by exempting certain employers from paying the payroll deduction premiums or participating in the program altogether, the PFML is a de facto income tax law change involving a surcharge that will result in taxable income not being taxed at one rate, thus violating TABOR. On the other side of the dispute, the trial court previously ruled that the PFML did not amount to a change in the income tax laws, so the TABOR did not apply.
Employers in Colorado will want to follow this state Supreme Court case closely to know how it will affect their obligation to pay the payroll deduction premiums beginning in January 2023. More broadly, this legal challenge is a good reminder to all employers that one of the most common challenges to implementing employee benefits initiatives is deciding how you are going to pay.