Nearly 1 in 10 babies born in the United States now spends time in a neonatal intensive care unit, and until this year, that time came straight out of a new parent's paid bonding leave. Colorado just became the first state in the country to fix that. Starting January 1, 2026, the state's Family and Medical Leave Insurance (FAMLI) program offers up to 12 weeks of separate, paid leave specifically for the time a newborn spends in the NICU, on top of the 12 weeks of bonding leave parents already had. For a small business owner in Colorado, that means a new payroll wrinkle worth understanding before an employee's family needs it.
This guide walks through what changed, how the benefit works, what it costs employers, and how to keep your books straight when someone on your team takes it.
What Changed: Neonatal Care Leave, Explained
Colorado's FAMLI program already gave new parents up to 12 weeks of paid leave to bond with a new child. The problem was structural: if that child needed intensive care after birth, the clock on bonding leave started ticking immediately, often while the parent was shuttling between a hospital room and pumping breast milk in a parking garage rather than actually bonding with a healthy baby at home.
Senate Bill 25-144 closed that gap. It created "Neonatal Care Leave," a distinct category of paid FAMLI leave available for as long as an infant remains admitted to a NICU, up to a maximum of 12 weeks. Critically, this leave does not draw down the parent's existing bonding-leave balance. A parent whose newborn spends three weeks in the NICU can use three weeks of Neonatal Care Leave for that hospital stay, then still take a full 12 weeks of bonding leave once the baby comes home. In the most extreme cases, that adds up to a combined 24 weeks of paid leave for a single new child.
Eligibility follows the same lines as standard bonding leave: biological, foster, adoptive, and step-parents qualify, as do people acting in loco parentis to the infant. There is no separate application process to learn; employees request Neonatal Care Leave through the same FAMLI system, with documentation of the NICU admission from the hospital or attending provider.
Why This Matters Beyond Colorado
Even if you don't operate in Colorado, this is worth tracking. Colorado has a pattern of being the testing ground for paid-leave policy that other states later adopt in modified form, and NICU-specific leave is already showing up elsewhere: Illinois passed its own NICU Leave Act effective in 2026, though it functions as unpaid, job-protected leave rather than a paid wage-replacement benefit like Colorado's. If you employ remote workers or plan to expand into new states, expect more of this patchwork, not less.
For employers who do have Colorado-based employees, though, the mechanics are immediate and specific.
How the Program Is Funded: What Comes Out of Payroll
FAMLI is funded through a payroll premium split between employer and employee, not a general tax. For 2026, that premium rate is 0.88% of wages, actually a slight decrease from 0.9% in prior years thanks to the same bill that created Neonatal Care Leave.
Here's how the math works for most employers:
- Employers with 10 or more employees: pay the full 0.88% premium, split 50/50 between employer and employee. That's 0.44% withheld from each employee's wages and 0.44% paid by the business.
- Employers with fewer than 10 employees: are not required to pay the employer share at all. You still must withhold the employee's 0.44% share and remit it, along with quarterly wage reports, to the FAMLI Division. Your employees remain fully covered and eligible for benefits, including Neonatal Care Leave, either way.
Starting in 2027, the FAMLI Division will set the premium rate annually by September 1 of the preceding year, with a statutory ceiling of 1.2% of wages. If you're budgeting payroll costs for next year, that's a number worth watching rather than assuming will hold steady.
Employers also have the option to apply for an approved private plan, including self-insurance, that meets or exceeds FAMLI's benefits. Until that private plan is formally approved by the Division, though, you're still required to pay standard FAMLI premiums, so this isn't a shortcut around near-term compliance.
Recording FAMLI Premiums and Leave Correctly
FAMLI withholding is a payroll liability, not a business expense, for the employee's share, and a real payroll tax expense for the portion (if any) you pay as the employer. Getting this distinction right avoids overstating your labor costs and keeps your quarterly wage reports reconcilable against what actually left your bank account.
A clean, simple chart of accounts treatment looks like this:
- Employee withholding (0.44% typical 2026 rate): booked as a liability,
Liabilities:Payroll:FAMLI-Withholding, reducing net pay the same way federal and state income tax withholding does. - Employer contribution (0.44% for employers with 10+ employees; $0 for employers under 10): booked as a payroll tax expense,
Expenses:Payroll:FAMLI-Employer, alongside your other statutory payroll taxes like FUTA and SUTA. - Quarterly remittance: when you send the combined premium to the FAMLI Division, that transaction clears both the liability and any accrued expense, so your books show a zero balance in the FAMLI accounts right after filing, not a lingering discrepancy.
When an employee actually goes on Neonatal Care Leave or bonding leave, remember that FAMLI benefits are paid directly to the employee by the state, not by you. Unless you're topping up wages voluntarily during a covered leave (some employers choose to supplement FAMLI's wage-replacement percentage), there's no payroll entry for the leave itself, only continued benefits accrual questions like whether the employee keeps earning PTO or retirement match while out. That's a policy decision, not a FAMLI requirement, so document it in your employee handbook so payroll treats every leave consistently.
How This Interacts With Federal FMLA
If you're a larger employer already subject to the federal Family and Medical Leave Act (generally, 50 or more employees within 75 miles), Neonatal Care Leave and FMLA leave typically run concurrently for the same qualifying event, the same way FAMLI bonding leave already does. That matters because FMLA caps job-protected leave at 12 weeks per year total, while Colorado's combined NICU-plus-bonding benefit can reach 24 weeks of paid leave. In practice, this means an employee at a covered employer may exhaust FMLA job protection before their FAMLI wage-replacement benefit runs out, so the paycheck continues but the federal reinstatement guarantee does not automatically extend with it. Smaller employers not subject to FMLA don't have this overlap to manage, but should still confirm whether Colorado's own job-protection rules under FAMLI apply to their business size, since FAMLI job protection kicks in at a lower employee threshold than FMLA does. Either way, track FMLA and FAMLI leave separately in your records rather than assuming one automatically mirrors the other, since a mismatch here is one of the more common paid-leave compliance mistakes among growing employers.
What Small Employers Should Do Before Someone Needs This
You don't want to be looking up FAMLI rules for the first time the week an employee's baby is admitted to intensive care. A few things worth handling now:
- Confirm your headcount status. Whether you're above or below the 10-employee threshold changes whether you owe the employer-side premium, and that threshold is based on your total employee count, not just Colorado-based staff, so check the current FAMLI guidance if you have a mixed-location workforce.
- Verify your payroll provider supports the new leave category. Most major payroll platforms updated their Colorado tax tables for the 2026 rate change, but "Neonatal Care Leave" as a distinct, non-bonding-leave-reducing category is newer, and not every system tracks the two leave types separately by default. Ask your provider directly rather than assuming.
- Update your employee handbook. If your handbook describes FAMLI bonding leave but doesn't mention Neonatal Care Leave as a separate 12-week allotment, employees may not realize the benefit exists until they're already in a stressful situation and unlikely to go digging through a state website. A short, clear policy section prevents confusion at the worst possible time.
- Know the documentation employees need. Neonatal Care Leave requires proof of NICU admission from a healthcare provider. Point employees to the FAMLI Division's employee portal rather than trying to administer verification yourself, since FAMLI (not the employer) approves and pays claims.
- Decide your stance on supplemental pay. FAMLI replaces a percentage of wages up to a cap, not 100% of income for higher earners. Some employers choose to bridge that gap for leave related to a medical emergency like a NICU stay. If you plan to do this, define it in policy now so it's applied consistently rather than decided ad hoc.
The Bigger Picture: Paid Leave Programs Keep Getting More Granular
Colorado's Neonatal Care Leave is part of a broader trend: state paid-leave programs are moving from blanket categories toward benefits tailored to specific, high-stress life events. That's good for workers, but it does mean the payroll and compliance side of running a small business keeps adding new categories to track, each with its own premium math, documentation rules, and effective dates that vary by state.
Keeping accurate, well-organized books is what makes changes like this manageable instead of chaotic. When your chart of accounts already separates payroll liabilities from payroll expenses cleanly, adding a new line item like FAMLI withholding is a five-minute change, not a scramble to figure out where the money went. Beancount.io provides plain-text accounting that's transparent, version-controlled, and easy to adapt whenever a new payroll requirement like this one lands on your desk, so you can update your books with a clear audit trail instead of digging through spreadsheet tabs. Get started for free and see why small business owners are switching to plain-text accounting.