What employers need to know about the equivalent plan exemption and important steps to consider before Nov. 30, 2022

An employer with a single employee working primarily in Oregon needs to prepare for the Paid Leave Oregon Program which becomes effective for contribution withholding on Jan. 1, 2023, and for benefit eligibility on Sept. 3, 2023. Key steps to take include:

• Notify your employees about Paid Leave Oregon by Jan. 1, 2023

• Decide whether to apply for an equivalent plan (or file a declaration of intent)

• Arrange for employer payments (unless a small employer – fewer than 25 employees)

• Begin payroll deduction contributions from employees beginning Jan. 1, 2023

An employer intending to adopt an equivalent plan rather than participate in the state-run program should be aware that by filing an application for an equivalent plan (and obtaining approval) or submitting a declaration of intent on or before Nov. 30, 2022, may not need to collect and submit employee payroll contributions to the state starting Jan. 1, 2023. Contributions may be withheld as of Jan. 1, 2023, to fund an equivalent plan.

Details regarding the mandatory notice, contributions and the equivalent plan exemption process are discussed below. For additional details on general information related to Paid Leave Oregon, see our previous Alert (opens a new window).

Provide advance notice to employees about Paid Leave Oregon

Covered employers must provide employees with notice of Paid Leave Oregon by Jan. 1, 2023. The state has a Model Notice which is now available in 11 languages to ensure that the notice is provided to employees in the language that the employer typically uses to communicate with them.

Employers with an approved equivalent plan must provide notice to employees about the coverage provided under the equivalent plan. The notice must include the following information:

• Benefits available under the approved plan, including the duration of leave

• How to file a claim to receive benefits under the plan

• Employee contributions withheld for the plan

• The process to appeal benefits decisions

• Job protections and the continuation of health benefits during paid leave

• Prohibition of discrimination and retaliation related to paid leave and the right of an employee to bring civil action

• Confidentiality of any health information provided

Employers can look to paidleave.oregon.gov for the notice template for employers offering equivalent plans, which has not yet been released.

Post the notice in the area in which other mandatory postings are maintained such as a breakroom or other area easily accessible to and frequented by employees. Notice should be provided to remote-work employees as well by hand delivery, electronic delivery, or regular mail. In addition, employers must give notice to employees at the time of hire and employers with an equivalent plan must notify employees each time the policy or procedure changes.

Lockton comment: A best practice for distributing the mandatory notice to remote workers is to have a method by which delivery can be tracked. For instance, if using e-mail have a “read” receipt.

Determining coverage and contributions

All employers with a single employee working primarily in Oregon are covered by the Paid Leave Oregon Program except the federal government and tribal governments. A tribal government may choose to opt into the Program.

The Program provides partial wage replacement to qualifying employees and is funded through payroll contributions. A business employing 25 or more persons is a large employer and is required to contribute to the Program. Employees companywide are counted when determining whether a business meets the “large employer” threshold. Payments are shared between employees and large employers -- employees pay 60% and large employers pay 40%. Small employers (those with fewer than 25 employees companywide) do not contribute but do collect and submit the employee portion.

Beginning Jan. 1, 2023, employers must start withholding employee contributions. Notify your employees that these deductions will be made. These contributions are held in trust until paid to the Oregon Employment Department (OED) through the combined payroll reporting process with quarterly reporting requirements. The contribution rate is 1% of up to $132,900 in wages. Employers can choose to pay the employees’ portion. The state has yet to determine whether it is taxable income for an employee if the employer pays the employee portion.

Lockton comment: The Oregon Combined Payroll Reporting process will include Paid Leave Oregon in payroll reporting forms. More details and updated forms will be available for 2023. Employers can view the 2022 version here. Employers will fill out the portion of all wages eligible for contributions under Paid Leave Oregon, the employee count, and contributions due. Each employer must also file an Oregon Employee Detail Report (Form 132) that includes paid leave subject wages.

Employers seeking to avoid collecting and paying contributions quarterly to the state can apply and obtain approval for an equivalent private plan. To be exempt from the required quarterly contribution payments, employers must submit their equivalent plan application as follows:

• By Nov. 30, 2022, to be exempt from paying contributions beginning with the first quarter that starts Jan. 1, 2023

• By Feb. 28, 2023, to be exempt from paying contributions beginning with the second quarter that starts April 1, 2023

• By May 31, 2023, to be exempt from paying contributions beginning with the third quarter that starts July 1, 2023

Equivalent plan coverage will be effective starting on Sept. 3, 2023, when benefits become payable. If an equivalent plan approval is cancelled for any reason before Sept. 3, 2023, the employer must collect and pay contributions for all unpaid periods since Jan. 1, 2023, and is subject to penalties and interest. If the approval was cancelled, the employer cannot retroactively collect funds from an employee’s wages to pay for past due amounts.

Lockton comment: An employer wanting to avoid the collection of payroll contributions from employees to be remitted to the state beginning Jan. 1, 2023, should file an application for an equivalent plan exemption on or before Nov. 30, 2022, or file a declaration of intent (discussed below). Even if utilizing an equivalent plan, an employer can still require employee payroll contributions so long as the employee does not pay more than required by the state program.

Equivalent plan options

There are two options for employers seeking an equivalent plan. An employer can provide a fully insured equivalent plan in which case an employer may purchase an insurance policy through an insurance company which will administer the benefits under the plan.

Lockton comment: As of the date of this Alert, the Oregon Department of Consumer and Business Services’ Division of Financial Regulation has not identified any approved insurance products that satisfy the state’s requirements. For updated information, check here. In the interim, you may ask your insurer if they plan to offer an equivalent plan product.

Alternatively, an employer can provide an employer-administered equivalent plan in which they assume all financial risk associated with the benefits and the administration of the plan (which can be administered by a third-party administrator). For complete details on employer administered plan minimum requirements, the state offers a detailed chart.

An employer opting to self-fund an equivalent plan is required to provide proof of solvency. The state offers a Solvency Guide. To demonstrate solvency, employers must show they have funds equal to the Paid Leave Oregon contribution rate for three calendar quarters by estimating the total wages for each of the three upcoming calendar quarters and multiplying that amount total by 1% (the 2023 contribution rate). Using this estimated amount, an employer may provide proof of solvency by:

• Providing documentation such as a bank statement demonstrating sufficient assets;

• Providing a bond; or

• Providing an irrevocable letter of credit (naming the Oregon Employment Department as the payee or beneficiary) issued by an insured institution.

Proof of solvency must be submitted with the equivalent plan application.

Equivalent plan coverage

Employers that adopt an equivalent plan can apply for an exemption from participating in the state plan by obtaining state approval. A separate application must be submitted for each business based on Business Identification Numbers.

An equivalent plan must cover all hourly and salaried, full and part-time, seasonal and temporary employees.

New hires on or after Sept. 3, 2023, who were previously covered under the state-run program or who are new to the Oregon workforce must be covered within 30 days. An employee previously covered by an approved Oregon equivalent plan must be covered on the date of hire. The Oregon Employment Department will provide information to employers or third-party administrators to determine if the employee had previously been covered under an approved equivalent plan. If an employer does not provide immediate coverage for employees previously covered under an equivalent plan, they may be required to withhold employee contributions and send payments to the state program for the period before they begin coverage of that employee under their own sponsored equivalent plan.

Lockton comment: For employers opting to use an equivalent plan, note that beginning September 2023, you will need to ask a new hire if they were covered by an approved equivalent plan. Because employees are not required to provide that information, employers should be prepared to routinely contact the OED for that information with each new hire.

Even with an equivalent plan, an employer can require employee contributions provided the cost is equal to or less than the cost of the state plan. Employers may also assume all or part of the costs that would otherwise be the employee’s responsibility. Contributions from employees must be used for equivalent plan expenses only. Misuse of these funds may result in the termination of the equivalent plan. If an employer requires employee contributions, there are related reporting obligations.

Lockton comment: Employee contributions for the equivalent plan should be segregated from other employer assets. As a best practice, those funds should be held in a separate trust.

To be approved, an equivalent plan must provide benefits equal to or greater than the state plan benefits, including:

• Allowing leave for family, medical, and safety reasons

• Providing up to 12 weeks of paid leave per year (plus an additional two weeks for pregnancy-related medical leave)

• Allowing employees to take paid leave consecutively or intermittently in one-day or one-week increments

• Having no additional conditions or restrictions for employees to use paid leave

Lockton comment: Employers frequently ask whether an existing paid parental leave policy that covers bonding time at 100% pay would qualify as an equivalent plan. Generally, this would not suffice to meet the requirements of an equivalent plan because it does not provide benefits equal or greater than the state plan since it only covers bonding leave. Any current employer policies believed to provide equivalent benefits must first be approved by the state to qualify as an equivalent plan. Even if a paid parental leave policy is not an equivalent plan, benefits can run concurrently with leave under Paid Leave Oregon and supplement the state benefit. The employer’s policy should address this coordination. Additional guidance from the state relating to the coordination of benefits is expected before benefits go “live” in Sept. 2023.

When an employee applies for benefits under an equivalent plan, either the employer or administrator may request consent from the employee to obtain benefit information from the Oregon Employment Department (OED) to ensure benefits are at least equal to those under the state plan. If the employee does not give consent, the employer can request the benefit information from the OED. The OED will respond within 10 calendar days of a request.

Lockton comment: If an employee has coverage under more than one plan when leave begins, the employee must apply with each plan separately. To identify other coverage, an employer can ask the employee whether they have additional paid leave coverage but may not require that the employee provide those details. The employer can request information from the OED. If the OED is aware of simultaneous coverage, it will adjust the weekly benefit amounts by prorating the days worked for each respective plan and notify employers of the prorated benefit amount. The employer with the equivalent plan must pay at least its portion of the weekly benefit to the employee.

When opting for an equivalent plan, benefit claim decisions must be provided to employees in writing (hard copy or electronically). The decision must include the amount of leave approved, the weekly benefit amount and contact information for the OED so the employee can request their average weekly wage to confirm the accuracy of the benefit amount. If the claim is denied, the decision must include the reason(s) for the denial and an explanation of the employee’s right to appeal including how to submit an appeal. If the employer or administrator are unable to resolve an appeal through the equivalent plan’s appeal process, the employee may contact the OED which will review the dispute and provide an advisory decision. The employee is entitled to submit a wage claim with the Oregon Bureau of Labor and Industries if the employer or administrator does not follow the OED advisory decision.

Benefit payments must be issued to an employee within two weeks of receiving the claim or the start of leave, whichever is later. Benefit payments must be weekly, if fully insured, or according to the employer’s regular pay schedule, if the plan is self-funded.

The equivalent plan must provide benefits to covered employees who earned at least $1,000 in gross wages from all employment in Oregon during the previous year and have a qualifying event. Employers can verify an employee’s eligibility through the OED. Benefit eligibility is based on either the base year (first four of the five completed quarters before the start of the benefit year) or the alternate base year (the four most recently completed quarters before the start of the benefit year).

The equivalent plan must:

• Cover family leave, medical leave, and safe leave

• Provide at least 12 weeks of paid leave per benefit year in any combination of the three types of leave

• Afford qualifying employees an additional two weeks of paid leave for pregnancy-related issues

• Permit leave to be taken in one workday or one workweek increments in consecutive or non-consecutive periods

• Start the 52-week benefit year on the Sunday before the period of leave. An employee who has started a benefit year under previous coverage continues the same benefit year under the equivalent plan until that benefit year is complete. Employers can request information on previously established benefit years from the OED.

Lockton comment: Once the program benefits become payable and an employer hires new employees after Sept. 3, 2023, we recommend that the employer contact the OED to determine whether the new hire has exhausted leave under the Program at a prior employer. For instance, an employee hired in November 2023 may have exhausted weeks of their leave allotment at their prior employer which would factor into how much leave remains available under the new employer’s program.

An equivalent plan cannot impose requirements on employees when verifying leave other than the following:

• Family leave: an employer may request documentation showing the birth, adoption, or placement of a child; or documentation that a family member has a serious health condition including a description of the family relationship, but an employer cannot require additional information detailing that care is necessary or to verify the type of family relationship

• Medical leave: an employer can require documentation demonstrating the serious health condition

• Safe leave: an employer can request documentation but must accept self-attestation when the employee has good cause for not providing documentation.

• Pregnancy limitation leave: documentation can be required to show the employee gave birth but nothing more.

Equivalent plan reporting requirements

Employers choosing an equivalent plan must follow reporting requirements applicable to all employers as well as specific reporting for equivalent plans. This reporting includes:

• Combined payroll reports and providing wage information for all employees

• An annual report on benefits usage

• An annual report on employee contributions, unless the employer pays 100% of the cost

Employers must maintain payroll records, including records documenting employee contributions and expenses. Employment records must identify the total hours worked by all employees and the amount of leave taken by employees under the program for the current calendar year including the last three calendar years.

An employer that fails to file, in whole or in part, the required reports will be assessed a penalty of 1% of the employee wages in the previous calendar year. The employer can request a waiver of the penalty for good cause. If a wavier is denied, the employer may request a hearing.

Applying for an equivalent plan

The state is now accepting equivalent plan applications. An application can be filed online through the Frances Online portal. The state estimates that review of the application will take approximately 30 days. As indicated, although an employer may withhold contributions toward funding the equivalent plan, an employer need not collect and remit contributions to the state as of Jan. 1, 2023, if the equivalent plan application is filed on or before Nov. 30, 2022.

When applying for the equivalent plan exemption, an employer must submit the following:

• Application fee ($250)

• Business Identification Number and Federal Employer Identification Number

• Employer name, address, and contact information

• A copy of the employer-administered self-funded equivalent plan or insurance policy with the insurance product and chosen options

• For employer-administered self-funded plans only, proof of solvency (see above)

• For fully insured plans only, information about the insurance policy and carrier including business and contact information and the date the policy begins and ends

• A completed questionnaire (included with the application) demonstrating the plan meets the requirements for equivalent plans

After the initial application and approval, an employer must reapply for approval annually for the first three years. After that period, no reapproval is needed unless there is a change to the plan.

If an equivalent plan application is denied, the employer remains covered by Paid Leave Oregon and must continue to collect and pay contributions as required. Employers can appeal denials by submitting a request in writing to the Oregon Employment Department or to the Office of Administrative Hearings. However, the employer cannot obtain employee contributions retroactively and must make up any employee contributions that were not withheld.

Lockton comment: An employer choosing not to use an equivalent plan in 2023, can apply for this exemption down the road. Nothing precludes an employer from obtaining an approved equivalent plan starting Jan. 1, 2024, for instance. In that case, the employer would be responsible for collecting and submitting contributions starting Jan. 1, 2023.

Withdrawing from an equivalent plan

Once an equivalent plan has been in effect for at least one year, an employer can withdraw by providing 30 days’ notice to the Oregon Employment Department. The employer must also provide 30 days’ notice to its employees. If an employee’s leave overlaps with the effective date of withdrawal, the employer must continue all equivalent plan requirements and pay benefits until the total amount of the benefit is paid or the leave ends, whichever occurs first.

The withdrawal will be effective 30 days from the later of the following:

• The date the withdrawal form is received by the OED

• The date that the equivalent plan has been in effect for one year

• The effective date of the withdrawal requested by the employer

When an equivalent plan is withdrawn, the employer must pay the balance of employee contributions into the Paid Leave Oregon Trust Fund. The OED assesses the amount based on the most recent financial reports and other financial information. The balance will be any employee contributions that are held by the equivalent plan employer minus the benefits paid and administrative expenses. Interest accrues from the date of the withdrawal until paid.

Termination of an equivalent plan

The Oregon Employment Department may terminate an equivalent plan under the following circumstances:

• Misuse of employee contributions

• Failure to adhere to the department-approved equivalent plan or report changes

• Failure to adhere to the program requirements and reporting requirements

• Failure to file for reapproval

• Employer insolvency

• Termination of the insurance policy by the plan administrator

• Failure to respond timely to the OED’s reasonable inquiries for information

An employer will be notified of the reason(s) for termination and instructions on how to resolve the reason(s). The equivalent plan will terminate if the issue is not resolved. The OED will notify the employer of the effective date of termination and the employer must notify employees of an equivalent plan termination within ten business days of the notice sent by the OED. An employer may appeal a termination decision.

As of the effective date of the termination, the employer must begin withholding and paying employee and employer contributions to the state program. An employer whose equivalent plan is terminated must wait three years from the date of termination to apply for another equivalent plan.

Declaration of intent

Unique to the Oregon Paid Leave Program is the option for an employer to file a declaration of intent rather than submit an application for an equivalent plan exemption. By filing a declaration of intent, the employer is committing to provide the state with an application for an equivalent plan by May 31, 2023. The deadline to submit the declaration is Nov. 30, 2022. An employer submitting a declaration is relieved of withholding contributions that must be remitted to the state starting Jan. 1, 2023.

In the event an employer that submitted a declaration fails to have an approved equivalent plan by June 30, 2023, the employer must collect and pay contributions for all unpaid periods since Jan. 1, 2023. Penalties and interest will be due as well. In the event an employer’s equivalent plan is not approved, employers cannot retroactively withhold contributions from employees’ wages to pay the contributions due.

Lockton comment: An employer that timely files a declaration of intent is not required to submit the employee and employer contributions to the state. If the employer does not ultimately submit the equivalent plan application on or before May 31, 2023, and secure an approved equivalent plan by June 30, 2023, the employer will be required to pay all contributions dating back to Jan. 1, 2023. If the employer did not collect the premium contribution from its employees starting Jan. 1, 2023, it cannot do so retroactively. If this is a concern, employers filing a declaration of intent can elect to withhold employee contributions on Jan. 1, 2023, to put toward the state-run program or a proposed equivalent plan.

Steps to take now

If you are an employer covered by Paid Leave Oregon, here are recommended steps to take as the new year approaches:

• Register your business with the Oregon Frances Online system which supports combined payroll reporting and will include Paid Leave Oregon

• Post the model notice if participating in the state-run program or prepare a notice to reflect the components of an approved equivalent plan, and also distribute the notice to remote workers

• Advise employees of the payroll deduction beginning Jan. 1, 2023, if you intend to have employees pay the employee portion of the premium

• Coordinate with payroll and your outside vendor if taking the payroll deductions

• Determine whether to apply for an equivalent plan exemption and submit the application by Nov. 30, 2022, to avoid the collection of employee contributions through payroll deductions as of January 2023

• If you cannot complete the application for an equivalent plan by Nov. 30 but intend to submit an application for an equivalent plan exemption on or before May 31, 2023, file a declaration of intent by Nov. 30, 2022, to avoid collection of employee contributions January 2023

• Review existing leave policies and determine how they will coordinate with the Paid Leave Oregon benefits and whether revisions will be needed effective Sept. 3, 2023

• Identify information to obtain from new hires beginning Sept. 3, 2023 regarding prior participation in the state-run program or through an equivalent plan.

• Review the available resources from paidleave.oregon.gov:

  • Employer Guidebook

  • Equivalent Plan Checklist

  • Equivalent Plan Guidebook

  • Equivalent Plan Application

  • Declaration of Intent

If you missed the Oct. 4, 2022 “Paid Leave Oregon: What you need to know now to be compliant by Jan. 1, 2023” webcast, contact your account team for a replay link and the slides. We will continue to follow future developments regarding this program as the benefit eligibility date draws closer. If you have additional questions, please reach out to your Lockton account team.

Not legal advice: Nothing in this alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's IAS/HR Compliance Consulting group are not privileged under the attorney-client privilege.

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