To say that starting a family is stressful would be an understatement—in fact, that statement is in it of itself so much of an understatement that even calling it an understatement is probably an understatement (it cannot be understated how much of an understatement that statement is). Outside of all these statements is the reality of starting a family while working full-time. Sure, you can usually juggle your own medical issues with your job whenever they come up, but what about juggling someone else’s or an indeterminate amount of other people’s on top of your own? Pretty soon, the weight of being a full-time employee at your job and being a full-time parent at home becomes quite heavy.
We get it. At Payday HCM, plenty of clients have approached us seeking advice on making this balance work better for their employees. It’s a tricky task, one that’s come more to the forefront as more laws and regulations surrounding paid family and medical leave come into fruition. In Payday’s home state of New Mexico, a paid family and medical leave act is again making the rounds in this year’s legislative session as more efforts for the U.S. to enact federal legislation around paid family and medical leave increase.
That’s why, in this article, we’ll go over everything you need to know about paid family and medical leave. We’ll go in-depth with what paid family and medical leave is, how it differs from unpaid leave, its advantages and possible disadvantages, and what your business needs to know about offering this benefit to your employees. By the end of this article, you’ll be better equipped to provide your employees with the help they need to handle any of life’s most significant events.
In this article, you will learn:
- What Is Paid Family and Medical Leave?
- Is Paid Family and Medical Leave the Same as the FMLA?
- How Does Paid Family and Medical Leave Impact Taxes, and How Much Does It Cost?
What Is Paid Family and Medical Leave?
Firstly, we’ll start by going over the origins of paid family and medical leave and the current landscape surrounding it.
The History of Paid (and Unpaid) Family and Medical Leave
Unlike other benefits like health insurance or PTO, family and medical leave—whether it be paid or unpaid—is a relatively new concept (at least within the U.S.). In 1984, the Women’s Legal Defense Fund would create the first draft of what would eventually become the Family Medical Leave Act, passed in 1993.
The passage came after a lengthy battle of blockages and vetoes since its inception in 1984 until its eventual passage in 1993. Since then, the FMLA has remained largely unchanged, with the only notable exception being a revision from 2015 that tweaked the definition of spouse to include same-sex couples.
Inside the FMLA
The Family Medical Leave Act provides qualifying employees with up to 12 weeks of unpaid leave for any qualifying events with group health benefits being retained during this time. Qualifying events under the FMLA are defined as:
- The birth of a child or placement of a child for adoption or foster care and to bond with the child
- To care for a child, spouse, or parent with a serious health condition (excluding in-laws)
- An employee taking leave when they are unable to work due to a serious health condition
- Qualifying situation relating to an employee’s spouse, child, or parent’s status as covered active duty or being called to covered active duty as a member of the National Guard
An employee is eligible for unpaid medical or family leave under the FMLA if they work for a covered employer, have worked 1,250 hours for their employer in the past 12 months, work at a location with 50 or more employees within a 75-mile radius, and have worked for the employer for 12 months (these do not have to be consecutive).
Covered employers include any local, state, or federal employers as well as any private sector employers who employ at least 50 employees for at least 20 weeks in the current or previous calendar year.
Is Paid Family and Medical Leave the Same as the FMLA?
Now that we have a clearer understanding of what the Family Medical Leave Act is, we can look at how it differs from paid family and medical leave.
Paid vs. Unpaid Family and Medical Leave
When looking at the Family Medical Leave Act, one of the biggest components to note is that the leave is unpaid. This can get confusing as the bill is only simply called the Family Medical Leave Act, so, on the surface, it could mean the leave is paid (admittedly, though, the Unpaid Family Medical Leave Act doesn’t sound as nice).
Initially, alongside the proposal for 26 weeks of leave, the drafters of the first rendition of the Family Medical Leave Act wanted the leave to be paid, but they feared this move would be too unpopular. Currently, the U.S. is one of only six countries not to offer some sort of national or federal family and medical paid leave.
Benefits to Offering Paid Family and Medical Leave
While offering unpaid leave is required for some employers, there is no federal requirement for offering paid leave. This doesn’t mean that there aren’t potential benefits for employers who do offer their employees paid family and medical leave, however.
As of June 2024, only 27 percent of private-sector employees had access to some form of paid family leave, according to the Department of Labor. Offering paid family leave can help to decrease turnover of new mothers by almost 20 percent, though, according to Women’s Policy Research. Not only that, but 90 percent of working fathers said it would be important for an employer to offer some form of paid parental leave when looking for a new job, according to the Department of Labor.
How Does Paid Family and Medical Leave Impact Taxes, and How Much Does It Cost?
Another big question surrounding paid family and medical leave is taxes: is paid family medical leave taxed, and how would federal or state-level legislation fund paid family and medical leave?
Is Paid Family and Medical Leave Taxed?
Up until 2025, there wasn’t much guidance on whether or not any state-level regulations surrounding paid family and medical leave would be taxed. The IRS then released guidance through their Revenue Ruling 2025-4 that dictates certain situations and how state-mandated paid family and medical leave would be taxed.
According to the ruling, any premium amounts that an employer pays on behalf of an employee’s paid family and medical leave are taxable income, subject to federal income and employment tax. Benefits paid for family leave are included in an employee’s gross income but are not considered taxable wages for things like Social Security or Medicare; the state must furnish the employee with a 1099 form in these circumstances.
For medical leave, these amounts would also be included in an employee’s gross income unless the benefits are paid out as a result of the employee’s own serious health condition. The taxation of the medical leave benefits would be dependent on the percent of the premium that is paid by the employer and employee.
How Would Federal or State-Level Legislation Fund Paid Family and Medical Leave?
Another big question surrounding government-mandated paid family and medical leave—whether that be at the state level or federal—is how funding would work. For most businesses, offering paid family and medical leave is a matter of cost, so it's important to know how much any proposed legislation might cost.
We can look at the proposed New Mexico House Bill 11 for insight. The fund would work similarly to a group health insurance plan, with the employer and employee paying a certain percentage into the fund—for HB11, this amount is 0.4 percent of wages for employers and 0.5 percent of wages for employees.
And, similar to the FMLA, this bill would put a 12-week cap on the paid leave that employees can take. Small businesses with less than five employees would also be exempt from paying under HB11’s guidelines.
Leave Misunderstanding Around Paid Family and Medical Leave Behind
Family planning is stressful business. Not only do you have the raising a child aspect, but you also have the raising a child while working a full-time job aspect. At many points, these two things can seem impossible to do together. As an employer, you want to ensure you can do everything in your power to make your employees not only feel cared for, but have the tools and resources they need to do the things they want to do in their life. Offering paid family and medical leave is one such way of doing that. Now, with your newly acquired insight into the ins and outs of paid family and medical leave, you’ll be ready to take the next step in offering your employees the benefits they need.
When it comes to benefits, you want to ensure you’re offering the best possible benefits to potential and current employees—at as low a cost as possible. Check out our article on the price of a meaningful benefits package to find a solution that works not only for your employees but your budget as well.
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