Department of Labor Provides New Guidance for Employers on FMLA Substitution Rule

Under the Family and Medical Leave Act (FMLA), eligible employees are entitled to 12 weeks of unpaid, job-protected leave for the employee’s serious health condition, to care for a family member with a serious health condition, to bond with a new child, or reasons related to family members of individuals in the Armed Services. Although the FMLA does not require employers to provide paid leave, employers may require employees on FMLA leave to exhaust all PTO, vacation, and/or paid sick leave during their leave before going unpaid. Whether to require employees to use employer-provided paid leave during FMLA leave or allow employees to choose whether or not to use PTO is completely up to the employer. 

The Substitution Rule

Employer choice in allowing or requiring the use of employer-provided paid leave to receive pay concurrently with the unpaid leave guaranteed by the FMLA is known as the “substitution rule.”

However, when an employee taking FMLA leave receives wage replacement from workers’ compensation or short-term disability during their leave, the substitution rule does not apply. In these cases, the FMLA is not considered unpaid even if the wage replacement is less than 100 percent of the employee’s regular wage. When the substitution rule does not apply, the employer and employee must agree as to whether the employee will use employer-provided paid leave during FMLA leave.

PFML & The Substitution Rule

Fourteen states and the District of Columbia have currently enacted laws providing eligible employees with paid family and medical leave (PFML). Under the PFML laws, state government programs replace the wages of employees on leave for qualifying reasons with a percentage of their regular wage. Many PFML laws explicitly state that PFML leave runs concurrently with FMLA leave when leave is taken for a reason that entitles the employee to leave under both FMLA and PFML. The new state laws posed a question as to how the substitution rule would apply when PFML and FMLA ran concurrently.

On January 14, 2025, the Department of Labor (DOL) issued an Opinion Letter clarifying the application of the substitution rule to leave taken concurrently under FMLA and a state PFML law. According to the DOL, the substitution rule does not apply when an employee takes FMLA leave while receiving benefits under a PFML law. PFML is similar to worker’s compensation and short-term disability, in that it changes the required unpaid FMLA to paid leave.  Employees and employers must agree to the use of employer-provided paid leave during FMLA when it runs concurrently with PFML.

Because PFML only provides partial wage replacement, employees may wish to use employer-provided paid leave to make their pay whole during their leave. There are pros and cons to this for both the employee and the employer. Employers may agree to an employee’s request to top off their PFML with employer-provided paid leave to prevent PTO hoarding, or employees requesting weeks of vacation after already having a 12-week absence. Conversely, an employer may feel that having to run payroll just to dole out uneven increments of PTO per pay period is an administrative burden and may disagree with an employee who wishes to supplement PFML pay.

Some state laws explicitly permit employees to use employer-provided paid leave to make their pay whole during concurrent FMLA and PFML leave and do not require the employer’s agreement. It is important to have legal counsel experienced in multiple states to ensure you are complying with both state and federal law.

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