The U.S. Department of Labor (DOL) recently issued an Administrative Interpretation (AI) clarifying its opinion that employees are entitled to take Family and Medical Leave Act (FMLA) leave for birth, bonding or to care for the child of a domestic partner or same-sex domestic partner, as well as other children for whom an employee has responsibility for day-to-day care or financial responsibility, even though the employee has no biological or legal relationship with the child. According to the DOL, the AI was issued in response to numerous inquiries from employers regarding when an employee with no legal relationship to a child is considered to be standing “in loco parentis” under the FMLA and, accordingly, entitled to leave. (The AI does not address an employee’s entitlement to take military-related leave under the FMLA, which is governed by different definitions.)

Although the DOL states that it is clarifying the definition of when an employee is considered to stand “in loco parentis,” this is the first time the agency has specifically stated that otherwise covered employees are entitled to take FMLA leave to care for the children of same-sex domestic partners.

Background

The FMLA allows an eligible employee to take up to 12 weeks of leave for the birth or placement of a child, to care for a newborn or newly placed child, or to care for a child with a serious health condition. The FMLA defines a “son or daughter” as a “biological, adopted or foster child, a stepchild, a legal ward, or a child of a person standing in loco parentis.”

The AI explains that Congress intended the definition of “son or daughter” to reflect the reality that many children in the Unites States today do not live in traditional “nuclear” families with their biological father and mother. Congress further stated that the definition was intended to be construed to ensure that an employee who has day-to-day responsibility for caring for a child is entitled to leave even if the employee does not have a biological or legal relationship to the child. Accordingly, Congress included the term “in loco parentis,” which is defined as “in the place of the parent” within the definition of “son or daughter.” The key in determining whether someone is “in loco parentis” is the intention of the person to assume the status of parent toward a child.

Interpretation

The DOL stated that whether an employee stands “in loco parentis” to a child is a fact issue dependent on multiple factors including:

• the age of the child;
• the degree to which the child is dependent on the person claiming to be standing “in loco parentis”;
• the amount of support, if any, provided; and
• the extent to which duties commonly associated with parenthood are exercised.

Further, the FMLA regulations define “in loco parentis” as including those with day-to- day responsibilities to care for and financially support a child. The AI interprets this regulation to require either day-to-day responsibilities for care or responsibility for financial support, but states that an employee is not required to show both factors to be considered standing “in loco parentis” for a child.

Thus, the AI states that employees with no legal or biological relationship to a child may nonetheless stand “in loco parentis” to a child and be entitled FMLA leave. Examples of persons who might fit the definition of “in loco parentis” include:

• an employee raising a child with the biological parent;
• same sex partners raising a child where the employee has no legal or biological relationship with the child;
• an employee who requests leave to bond with the adopted child of a same sex- partner; and
• a grandparent or other relative who has taken on the responsibility to raise a child but has not legally adopted the child.

It should be noted that the fact that a child has biological parents does not prevent a finding that the child is the “son or daughter” of an employee who lacks a legal relationship with the child because “neither the statute nor the regulations restrict the number of parents a child may have under the FMLA.” However, an employee who cares for a child while the child’s parents are on vacation would not be considered to be “in loco parentis” to the child. According to the Administrator, an employer who is not sure whether the employee is entitled to leave as standing “in loco parentis” should be satisfied with a simple statement asserting that the requisite family relationship exists.

Employers’ Bottom Line

Whether an employee’s relationship to a child is covered under the FMLA must be analyzed on a case by case basis. The fact that an employee provides either day-to-day care or financial support may be sufficient to establish an “in loco parentis” relationship where the employee intends to assume the responsibilities of a parent. Therefore, it is important to be aware of the broad interpretation the DOL gives this term and carefully analyze every request under the FMLA for leave to care for a child.

Included in the federal health care overhaul passed earlier this year, the small business health care tax credit can offset up to 35% of the insurance premiums that a small company pays to cover its employees this year, according to the federal Small Business Administration. The rate will increase to 50% in 2014. The U.S. Department of the Treasury recently released detailed guidance as to how a small business could take advantage of the credits.

Small businesses face unique challenges to providing health insurance for their employees, such as higher costs and fewer choices than those available to larger companies. Nationally, an estimated four million small companies might qualify for the tax credit, which is designed to help subsidize insurance coverage by about $40 billion over the next 10 years, according to the federal government. The tax credit can also be used to cover add-on dental, vision, and other limited insurance coverage. In Ohio, for example, an estimated 118,000 businesses that cover at least half of their employees’ health care costs would be eligible for the tax credit, according to the Ohio Department of Insurance.

According to the federal Small Business Administration, the health care bill would also benefit small companies by blocking dramatic premium increases when one employee gets sick.

The U.S. Department of the Treasury issued guidance designed to simplify eligibility information and allow companies to choose the most favorable method of determining worker hours in order to maximize the tax credit, which is available to companies with fewer than 25 employees.

Below are key elements of the program:

• Detailed Guidance. To help small businesses make employee benefit decisions with full knowledge and to provide a clear incentive to offer health insurance coverage, the new IRS Notice 2010-44 lays out detailed guidance on how a business can determine whether it is eligible and how large a credit it will receive.
• No Reduction Due to State Credits. Responding to a number of taxpayer questions about the interaction of the credit with state-level health care tax credits and subsidies, the guidance announces that the new tax credit will not be reduced by a state health care tax credit or subsidy (except in limited circumstances to prevent abuse of the credit). In particular, an employer that receives such a state tax credit or subsidy will also receive the full federal credit based on its entire contribution so long as the federal credit does not exceed the employer’s net contribution. According to lists compiled by the National Conference of State Legislatures, about 20 states offer these benefits.
• Dental and Vision Coverage Qualify. The guidance clarifies that small businesses can receive the credit not only for traditional health insurance coverage but also for add-on dental, vision, and other limited-scope coverage. The employer must meet the requirements for limited-scope coverage that are similar to those that apply for single coverage: the employer must offer to pay at least 50% of the premium.
• Employers Can Choose Most Favorable Method of Determining Hours Worked. Because the tax credit’s matching rate is highest for employers with 10 or fewer full-time equivalent employees (FTEs), the number of hours worked is an important factor in calculating the credit. The new guidance allows employers to choose among 3 different methods of determining hours to minimize their bookkeeping duties while receiving the maximum tax credit for which they are eligible. Employers can look at actual hours of service, or can use simple rules of convenience to estimate hours based on total days or weeks of service.
• Transition Relief for 2010 Formalized. Because the tax credit is effective for 2010 but was not enacted until March 23, 2010, some small businesses that are providing health insurance in 2010 may not meet all the requirements for a qualifying health insurance offer. To ensure that these businesses benefit from the credit, the Administration is providing special transition relief for tax year 2010. The transition rules simplify the requirements for what constitutes a qualifying health insurance offer while maintaining the core requirement that an employer make a significant contribution to the employee’s coverage. The transition relief was first mentioned in FAQs released on the IRS website on April 1, 2010, and has now been formalized in the new notice.