I’ve covered extensively my experience using the District of Columbia’s paid family and medical leave program to take time off to care for a family member. Since I began that series, the program has been reinforced even further, with the addition of 2 weeks of paid prenatal leave and an extension of personal medical and family caregiving leave to 12 weeks. The already-nominal 0.62% employer-side tax used to finance the program brought in so much revenue that it’s being cut to just 0.26% in July.
But as I explained in that original post, one threat remains: the director of the Department of Employment Services, the vile Doctor Unique Morris-Hughes, arbitrarily determined that to receive family and medical leave benefits, you had to be employed at the time of your application. I won’t relitigate how abusive this interpretation of the law is, but it’s the current law in DC.
Stewing on this question in the park the other day, I stumbled across an absurdly elegant solution: sole proprietors are eligible to opt into the paid family and medical leave program whether or not they are also employed elsewhere, and when filing for paid family and medical leave their weekly benefit is calculated across all their reported income, both from traditional and self-employment.
This may sound a bit theoretical, but the implications are absolutely essential for workers in states that only provide paid leave benefits to workers who are currently employed. Let’s see how it works, using DC as an example.
Employers report wages and pay premia into the system
There are two things going on here: first, wages are reported, which form the basis of a worker’s benefit when they claim paid leave. Second, they pay premia (currently 0.62%, dropping to 0.26% in July) into a trust fund which pays out those benefits.
Self-employed workers are able to opt into the system
Using the fairly cumbersome ESSP system, self-employed workers are able to opt into the paid family and medical leave system, report their self-employment earnings, and pay the same paid family and medical leave tax employers do.
Benefits are based on all reported earnings
While unemployed workers are ineligible for paid family and medical leave benefits, self-employed workers’ benefits are based on all their reported earnings, including those reported by employers they no longer work for.
Employees can preserve their benefits by reporting their self-employment income
While much of the financial advice industry is dedicated to concealing as much of your income as possible, I’ve always been a staunch advocate for reporting all your self-employment income. I’ve previously framed that imperative in the context of Social Security old age benefits, but in this case, the urgency is even more clear, since if you lose your job before you file your application for paid leave, you are categorically ineligible for paid leave, according to the vile Doctor.
Now, am I saying you should lie and report $100 in self-employment income per quarter, paying $0.26 per quarter in order to “insure” your paid family and medical leave benefit? Obviously not. But I’m certainly asking you to dig deep and think about all the things you do each quarter that might be reportable. Did you give a ride to a friend who gave you money for gas? Did you sell an old laptop on Ebay?
The simple fact is, reporting enough self-employment income to generate a paid family leave tax bill is a way of protecting yourself in case you lose your job just before a family care or medical crisis.
There’s a vision of the world where, like a stone skipped across a placid lake, people flit throughout their lifetime from job to job until finally coming to a rest and sinking to the bottom. It’s cheap to call this vision unrealistic. It’s truthful to call this vision horrifying.
This post was based on DC’s paid family and medical leave program, but if you live in a state, city, or county with a paid leave program, it’s worth taking a few hours to see how you can preserve your eligibility if you lose your job before you experience a qualifying event — if you wait, it’ll almost certainly be too late.