Oregon proposes accounting fix to comply with new IRS guidance for paid leave

Oregon employment officials on Tuesday urged the Senate Interim Committee on Labor and Business to approve a narrow legislative concept to let the Employment Department adopt rules creating an accounting system for the state's paid family and medical leave trust fund.

The department's acting paid-leave director, Juan Serratos, told the committee that a recent IRS guidance changes how paid-leave contributions and benefits are treated for federal tax purposes and could make employer-funded portions of medical-leave benefits count as wages. "The implementation would require thousands of system programming hours, which would cost $5,600,000 and about $20,000,000 annually in payroll tax liability," Serratos said, noting the department sought and won an implementation extension from the IRS until Jan. 2027.

Serratos and OED Director Andrew Stolfi described LC 2020 as a narrowly scoped fix that would authorize the department to adopt rules that segregate trust-fund dollars by source and restrict medical-leave payments to employee-contribution dollars. Serratos said that employee contributions represent about 60% of revenue while medical-leave benefits account for roughly 54% of benefit costs — a mix the department says supports the accounting approach without shifting new costs to employers or reducing worker benefits.

Stolfi emphasized limits on the proposal: the concept does not change the 1% statutory maximum contribution rate, the 60/40 employee-employer split, or the department's annual rate-setting authority. "This legislative concept would give OED very narrow authority to adopt rules that bring Oregon into compliance with the IRS ruling," Stolfi said.

Labor and employer representatives who testified said they generally supported the accounting approach but clarified internal process points: Katie Tyson of the Oregon AFL-CIO thanked the department for the work and called the proposal an "elegant solution," while Paloma Sparks of Oregon Business and Industry said employers consider the approach the best available option but noted the paid-leave advisory committee has not recorded a formal vote on the concept. OED staff confirmed the advisory committee discussed and provided support to pursue the accounting method but did not take a formal vote.

Committee members pressed presenters on contingencies if medical-leave costs exceed projections. Officials pointed to the trust fund's reserve (statutory six-month minimum) and existing fund balances as buffers and said further statutory adjustments would be available if needed.

The committee closed the informational hearing with no formal vote on the concept at this meeting. The department said implementation changes could be carried out using existing budgets if the rulemaking authority is approved.