Seyfarth Synopsis: On April 1, 2021, Massachusetts Governor Charlie Baker signed a new law that, among other issues, addresses the solvency of the Commonwealth’s unemployment compensation fund by imposing an excise on wages and permitting the Commonwealth to issue bonds to fund unemployment. The law also includes tax relief provisions for employers and employees, including gross income exclusions for employers who received certain COVID-19 relief benefits and a tax deduction for some individuals who received unemployment compensation in 2020 or 2021. While the unemployment and tax relief provisions of the bill are now law, the Governor exercised his line-item veto power to send the section of the bill mandating COVID-19 emergency sick leave back to the Legislature with recommended amendments. The sick leave provisions would have required employers to provide COVID-19 emergency paid sick leave for absences related to COVID-19 or the vaccine. Governor Baker supports this provision, but has recommended several revisions to the bill, including varying the compensation rate for different types of emergency sick leave and the establishment of a flat tax credit per employee.
On April 1, 2021, Massachusetts Governor Charlie Baker signed into a law an Act Financing a Program for Improvements to the Unemployment Insurance Trust Fund and Providing Relief to Employers and Workers in the Commonwealth. Among other provisions, the law addresses the solvency of the unemployment compensation fund and includes tax relief for employees and employers.
The law provides that for calendar years 2021 and 2022, employers’ contribution rates into the unemployment compensation fund will remain at their 2020 levels. Absent this change, contribution rates would have increased dramatically in 2021 and 2022 due to the impact of the high rate of unemployment attributed to COVID-19 on the unemployment compensation fund.
However, the law requires employers that make unemployment contributions to pay a new excise on wages for the period of January 1, 2021 through December 31, 2022. The excise rate will be determined by an employer’s reserve percentage in the unemployment compensation fund. The receipts from the excise will be deposited in a separate fund known as the Federal Loan Interest Fund and will be used to pay interest on federal loans to the fund. On September 30 of each calendar year, amounts which were not used to pay federal loan interest may be transferred to the unemployment compensation fund.
The new law permits the Commonwealth to issue bonds to help replenish the unemployment fund. For any year in which such bonds are outstanding, employers are subject to an unemployment obligation assessment. The rate for the assessment is intended to cover the principal, interest and expenses associated with the bonds.
The law includes several tax relief provisions for both employers and employees. For employers, the law excludes from Massachusetts gross income the forgiveness of a Paycheck Protection Program loan under the 2020 federal CARES Act. It also excludes from gross income advance payments under the Emergency Economic Injury Disaster Loan program of the CARES Act, subsidies for SBA loan payments under Section 1112 of the CARES Act, and any funding pursuant to the federal Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.
For employees, individuals who received unemployment compensation in tax years 2020 and 2021 may deduct up to $10,200 in unemployment compensation from their gross income if their household taxable income does not exceed 200% of the federal poverty level. In addition, the Commissioner of Revenue is not permitted to impose a penalty on any taxpayer for his or her failure to pay taxes in 2020 on unemployment compensation. Lastly, the law extends the deadline for filing tax returns for 2020 until May 17, 2021.
Proposed COVID-19 Emergency Paid Sick Leave
Although Governor Baker signed the provisions of the bill relating to unemployment and tax relief, the Governor exercised his line item veto power to send the sick leave portions of the bill back to the Legislature with suggested revisions. Notwithstanding the Governor’s veto, the Legislature and the Governor agree that employees should be provided with paid sick leave for absences related to COVID-19 or the vaccine. If passed, even as proposed to be amended, the sick leave provisions would make every full-time Massachusetts employee eligible for up to 40 hours of COVID-19 emergency paid sick leave (prorated for others). Employees would be able to use the new sick leave for a number of reasons, including to recover from COVID-19 or to obtain the COVID-19 vaccination or recover from illness or injury due to vaccination.
Reasons for Use. Under the proposed sick leave provisions, beginning 10 days after the effective date of the law, Massachusetts employers of all sizes would be required to provide COVID-19 emergency paid sick leave to their employees. The new sick leave may be used by employees who are absent from work for any of the following reasons:
- An employee’s need to: (i) self-isolate and care for oneself because of the employee’s COVID-19 diagnosis; (ii) seek or obtain medical diagnosis, care or treatment for COVID-19 symptoms; or (iii) obtain the COVID-19 vaccine or to recover from an injury, disability, illness or condition related to such vaccination.
- An employee’s need to care for a family member who (i) is self-isolating due to a COVID-19 diagnosis or (ii) needs medical diagnosis, care or treatment for COVID-19 symptoms. A family member includes the spouse, domestic partner, child, parent or parent of a spouse or domestic partner of the employee; a person who stood in loco parentis to the employee when such employee was a minor child; and a grandchild, grandparent or sibling of the employee.
- A quarantine order, or other determination by a local, state or federal public official, a health authority having jurisdiction, the employee’s employer or a health care provider that the employee’s presence on the job or in the community would jeopardize the health of others because of the employee’s exposure to COVID-19 or exhibiting of symptoms, regardless of whether the employee has been diagnosed with COVID-19.
- An employee’s need to care for a family member due to a quarantine order, or other determination by a local, state or federal public official, a health authority having jurisdiction, the family member’s employer, or a health care provider that the family member’s presence on the job or in the community would jeopardize the health of others because of the family member’s exposure to COVID-19, regardless of whether the family member has been diagnosed with COVID-19.
- An employee’s inability to telework because the employee has been diagnosed with COVID-19 and the symptoms inhibit the ability of the employee to telework.
Notice of the Need for Leave. Under the proposed bill, an employee would be required to provide notice of the need for COVID-19 emergency paid sick leave as soon as practicable or foreseeable. After the first workday, an employee receives COVID-19 emergency paid sick leave, an employer may require the employee to follow reasonable notice procedures in order to continue receiving COVID-19 emergency paid sick leave. An employee may use COVID-19 emergency paid sick leave on an intermittent basis and in hourly increments. An employer may not require an employee to find a replacement worker to cover the hours during which the employee is using COVID-19 emergency paid sick leave.
The amount of COVID-19 emergency paid sick leave available to an employee depends on his or her work schedule:
- An employee who works 40 hours or more per week shall be eligible for up to 40 hours of leave.
- An employee who works less than 40 hours a week, but maintains a regular schedule with consistent hours per week, shall be eligible for leave that is equal to the number of hours that such employee works per week, on average over a 14-day period of such regular schedule.
- An employee whose schedule and weekly hours worked vary from week to week is eligible for leave equal to either (a) the average number of hours that the employee was scheduled to work per week over the 6-month period immediately preceding the date of leave, or (b) if the employee has not worked for six months, the reasonable expectation of the employee at the time of hire of the average number of hours per week that the employee would normally be scheduled to work.
Compensation During Leave. Employees who use leave are entitled to compensation from their employer and to maintain all benefits to which they are entitled, including health insurance, vacation leave, sick leave, disability insurance and pension. However, no employee shall receive COVID-19 emergency paid sick leave in excess of $850 in a week. Further, compensation for COVID-19 emergency paid sick leave may be reduced by the amount of wages or wage replacement that an employee receives for that period under any government program or law. In the aggregate, an employee may not receive more than 100% of his or her regular weekly wages in a week. An employer may not require an employee to use other paid leave before using the COVID-19 emergency paid sick leave, unless federal law requires otherwise.
In administering the leave, if an employer obtains health information relating to an employee or his or her family member, it must maintain that information on a separate form and in a separate file from other personnel information and treat the information as confidential medical records. An employer may not disclose such health information except to the affected employee or with the express permission of the affected employee.
Employer Posting Requirement. Within 7 days of the effective date of this portion of the law, an employer must post a notice about the law in a conspicuous location. If employees are teleworking, notification must be sent via electronic communication or an electronic posting on web-based platform, such as a company intranet.
The bill makes clear that employers would be free to adopt more generous policies. It also explains that it is not intended to diminish or impair any obligation an employer may have under any collective bargaining agreement, contract, or employee benefit program or plan, that provides for greater job-protected time off. The bill includes broad anti-retaliation provisions.
The Governor’s Veto
Though the Governor and Legislature agree on many of the sick leave provisions, the Governor’s line-item veto reflects his disagreement with some of the financial aspects of the emergency sick leave.
Compensation During Leave. The bill adopted by the Legislature contemplated that all types of leave would be compensated the same. In his proposed revisions, the Governor proposed to have compensation mirror how leaves are compensated under the federal Families First Coronavirus Response Act (FFCRA), which applies to employers with fewer than 500 employees. Although the FFCRA sick leave provisions expired on December 31, 2020, employers who voluntarily provide sick leave under the FFCRA through September 30, 2021 are still entitled to a tax credit. Specifically, the Governor proposed that employees must be paid at their regular rate when they take sick leave to
- self-isolate due to a COVID-19 diagnosis,
- seek or obtain a medical diagnosis,
- obtain the COVID-19 vaccine or to recover from an injury or disability related to such vaccine,
- to observe a quarantine order, or
- due to their inability to telework as a result of COVID-19 symptoms.
However, employers would be able to pay employees two-thirds of their regular rate when the employee takes leave to care for a family member who is either self-isolating, subject to a quarantine order, or needs a medical diagnosis, treatment or care for COVID-19. By aligning his proposed revisions with the federal COVID-19 sick leave provisions, the Governor sought to ensure that employers who are compliant with the FFCRA could be assured that they also met the state mandate.
The Governor also proposed changes to how employers will be reimbursed for providing sick leave. The Legislature’s version of the bill proposed requiring employers who are not subject to the FFCRA to submit claims for reimbursement of leave benefits following an employee’s use of emergency paid sick leave. The Governor’s proposed revisions instead allow for a flat $40 tax credit per employee against amounts withheld from wages for each Massachusetts employee eligible for Massachusetts COVID-19 emergency sick leave. This tax credit would not be available to employers who are otherwise eligible for federal tax credits under the FFCRA as extended by the American Rescue Plan Act, meaning those with fewer than 500 employees. The Governor’s proposed revisions further specify that employers that provide leave that satisfies the requirements to be claimed as qualified sick leave wages under the FFCRA are not required to provide additional sick leave in accordance with the bill.
Under the Governor’s proposed revisions, employers who are not eligible for the federal tax credit would be able to claim the $40 credit regardless of whether employees use emergency sick leave. Employers who claim the Massachusetts tax credit must maintain records demonstrating that they are not eligible for the federal tax credit (i.e. they have 500 or greater employees). The Governor’s proposed tax credit scheme eliminates the requirement in the Legislature’s bill that required employers to provide the Commonwealth with medical documentation supporting an employee’s request for leave. This reduces the administrative burden on employers and eliminates the privacy concerns associated with sharing employee medical information.
Additionally, under the Legislature’s version of the bill, emergency paid leave could not be reduced by and would be addition to all other job protected time off, including leave pursuant to the Massachusetts Earned Sick Time Law, any existing employer policy or program, a collective bargaining agreement or under federal law. The Governor is proposing the new paid leave to be reduced by sick leave provided pursuant to the FFCRA or Section 9641 of the American Rescue Act Plan.
Finally, the Governor’s proposed revisions to the bill also provides more certainty as to when the new paid leave entitlement would end. As passed by the Legislature, COVID-19 emergency paid sick leave would be available to employees until: (i) monies in the COVID-19 Emergency Paid Sick Leave Fund are no longer available; (ii) the Executive Office for Administration and Finance notifies employers that it reasonably anticipates funds will no longer be available for reimbursement; or (iii) September 30, 2021, whichever is first. The Governor is proposing that employees’ entitlement to COVID-19 emergency paid sick leave would end on September 30, 2021.