Generous Employers Beware: Coordination of Disability Payments Just Got More Complicated

First Quarter 2011Newsletters California Update Employment Law

Once again California is a trendsetter. As of December 10, 2010, the state’s Employment Development Department (EDD) began sending payments for state disability insurance and paid family leave via a Visa-branded EDD debit card. This is terrific news for employees out on a leave of absence who now will not have to wait for EDD checks by U.S. mail. Instead, they will get a debit card to use to pay bills directly, or they can transfer funds posted to the card directly to their personal bank accounts.

If you are a generous employer that pays your employees for time off due to disability, maternity or family leave issues, coordinating those employer-provided benefits with state-provided benefits just became more complicated. Until recently, many employers had simply “advanced” wages to employees on a leave of absence, paying them full pay on normal pay periods and requiring employees to sign over their EDD checks when they arrived weeks later. This process allowed employees to maintain consistent income even when out of work and also simplified the process for employers. Unfortunately, that simple process will no longer work.

Now employers will have to require employees to write them checks or transfer EDD-provided funds back to the employer to reimburse such “advances.” Asking employees to pay the employer back for “advances” is not practical, will be hard to enforce and may have tax consequences for both the employer and the employee. More likely, employers will now need to do the calculations they have tried to avoid and pay employees only the difference between their wages and the EDD benefits. If you provide paid time off to employees in California, make sure to revise your procedures accordingly.