A small group of progressive lawmakers in the New Hampshire House of Representatives have introduced a Paid Leave Mandate bill (HB 1761) that would allow nearly every employee in the state to take up to 26 weeks off per year.

This bill establishes what, for small business owners, would likely be the most expensive and most burdensome state-mandated, employer-funded paid leave program in the country. Mandatory Paid Leave laws are in effect in 13 states.

We estimate the program would cost roughly $375 million per year at the outset, with costs rising due to inflation and increased utilization.

The proposal’s key elements – a new payroll tax, a half years’ worth of paid leave, finding replacement workers, strict regulations – exacerbate many of the most serious challenges facing small businesses in New Hampshire.

History & Background. This issue is not new to New Hampshire, but past proposals pale in comparison to what’s on the table now.

In 2019, Democratic majorities in the State House passed a different version of the Paid Leave Mandate. It provided employees up to 12 weeks off per year, provided lower levels of wage replacement, and was estimated to cost $15 million to build out and about $170 million each year in benefits and administrative expenses.

Unlike the current proposal, that bill offered some minor concessions to small businesses. However, it still would have imposed a massive new payroll tax and forced employers to find replacement workers for up to three months per year at a time of severe worker shortages.

Sununu Voluntary Program. Fortunately, the 2019 mandate bill was vetoed by then-Governor Chris Sununu. Rather than a one-size-fits-all mandate, Sununu encouraged legislators to adopt a voluntary version.

Sununu’s proposal became law and evolved into the New Hampshire Voluntary Paid Family and Medical Leave program.

The voluntary PFML program essentially operates like short-term disability insurance products currently offered in the market. It’s how state employees receive their family and medical leave, which serves to anchor the risk pool and keep premiums more stable.

Employers and individuals can buy into the program, which offers a base level of six weeks of paid leave at 60% wage replacement. Individual premiums are capped at $5 per week. Employers can opt for a 6-week or 12-week leave plan.

Employers are eligible for a tax credit against the BET equal to 50% of the premium for a six week plan.

The voluntary program is administered by MetLife rather than a government agency.

2026 Mandatory Program Proposal. HB 1761 puts the New Hampshire Insurance Department (NHID) in charge of the mandatory program and pays for it with a new payroll tax on nearly every worker, small business, and employer in the state.

Nearly every worker, public and private, would be allowed to take up to 26 weeks off per year for a wide range of reasons. Workers would receive a percentage of their wages as a weekly benefit while using the program.

The proposal’s wage replacement formula specifies that a worker’s weekly benefit would receive 90% of the portion of their wages that is below 30% of the statewide average weekly wage (SAWW) and 60% of the portion that is above it. The weekly benefit is capped at 100% of the statewide average (2026: $1,539).

Under this formula, a person making the statewide average would receive a weekly benefit of $1,062, or 70% of their regular wages.

This benefit set is significantly more expansive than the voluntary program and most private short-term disability plans.

How can leave be used? Leave can be taken for: (1) a person’s own serious health condition, (2) to care for a family member with a serious health condition, (3) the birth, adoption or foster placement of a child, or (4) qualifying exigency related to military active duty service.

The proposal’s definition of family member includes an expansive list of common relationships: spouse, children, parents, stepparents, grandparents, grandchildren.

It also includes “any other individual related by blood or whose close association with the covered individual is the equivalent of a family relationship.”

In other states with similar programs and definitions of family, “close association” is proven by personal attestation. In addition, nothing prevents multiple people from taking leave to provide care for the same family member or “close association.” This makes these programs ripe for fraud and abuse.

What else is required? Employees returning from leave are entitled to the same or equivalent position they held prior to leave, with “equivalent seniority, status, benefits, pay, and other terms and conditions of employment.”

Employees are entitled to take leave intermittently on a reduced schedule but must schedule foreseeable leave so as not to “unduly disrupt employer operations.” They also must provide notice before taking leave “to the extent practicable.”

Employers must continue an employee’s health insurance benefits, if offered, while they are on leave. Employers must also provide notice of the program to employees at hire and annually in English or the worker’s typical language, and post workplace posters in conspicuous places.

Employers are prohibited from requiring that employees draw down paid time off, sick time, or vacation time prior to or during use of the mandatory program. In other words, an employee’s sick, vacation, or PTO balance is frozen while they use the program, unless the employee opts to use the balance to increase their weekly benefit payment from the state.

What would this all cost? While the proposal does not yet offer financial details, we estimate the program will cost around $375 million per year at the outset. Costs will increase as wages and utilization grow.

Unlike most other states with mandatory PFML programs, there is no cap on the payroll tax rate or annual amount of program benefits. This leaves small businesses vulnerable to continuously escalating costs.

How was that cost estimated? This estimate is based on actuarial analysis and data from other state programs, specifically Massachusetts, Minnesota, and Washington.

Each state’s program has different benefit lengths and payment parameters:

MA: up to 26 weeks, weekly benefit cap of 64% SAWW

MN: up to 20 weeks, weekly benefit cap of 100% SAWW

WA: up to 18 weeks, weekly benefit cap of 90% SAWW

A program’s cost is based on a relatively simple formula, as explained by the actuarial firm Milliman:

Benefit Payments = expected claims X expected claim duration X average weekly benefit amount

Adjusting for HB 1761’s expansive benefit set, we estimate those parameters to be:

Expected Claims: 32,614

Expected Claim Duration: 10 weeks

Average Weekly Benefit: $1,077

Total Benefits Cost: $351,350,622

Administrative Costs (est.): $24,594,544

Grand Total: $375,945,166

That’s nearly double the current amount collected from the Business Enterprise Tax (BET).