New Massachusetts Paid Family and Medical Leave
Beginning in 2021, all Massachusetts employers must provide their employees (and, in some cases, contractors) paid leave for family and medically related absences. Under the new Massachusetts Paid Family and Medical Leave (PFML), unless an employer otherwise privately insures the cost of paid leave through an approved plan, compensation during leaves will be paid by the state. To accumulate the funds necessary to compensate leaves, Massachusetts will impose a new payroll tax beginning on July 1, 2019. Exemptions from the tax are available for employers privately compensating family and medical leaves at least up to the levels of the PFML, and providing the other protections offered under the PFML. To apply for an exemption, an employer needs a written plan that complies with the new law and a strategy for paying authorized leaves.
The following answers some questions about the PFML and the new payroll tax.
Which employers must comply with PFML?
All employers with employees working in Massachusetts must comply with the law.
Must an employer cover its 1099-MISC contractors?
If more than half an employer’s workforce is comprised of individuals whose compensation is reported on Form 1099-MISC, the employer must treat those individuals as employees covered under the PFML.
Is there any relief for small employers?
Employers with a workforce of 25 or under may deduct the entire PFML withholding tax from individuals’ compensation, up to the Social Security wage base.
How much is the tax?
The initial rate is 0.63% (adjusted annually) of compensation up to the Social Security wage base ($132,900 for 2019) of each employee and covered individual. Taxes are remitted to the Department of Family and Medical Leave through the MassTaxConnect system.
The most an employer with a workforce of over 25 can deduct from an individual’s wages for the 0.63% tax is 0.32% of pay up to the Social Security wage base. The employer is responsible for the remainder 0.31% tax, up to each employee’s and covered individual’s Social Security wage base.
When do tax payments begin?
Payroll taxes must be remitted quarterly through MassTaxConnect, beginning on July 1, 2019.
Is it cheaper to provide the benefits privately?
Whether it is economically more efficient for an employer to pay for family and medical leave benefits privately instead of paying the tax depends on facts and circumstances, including demographics and benefits already offered. If an employer already offers short- and long- term disability benefits, those may cover a substantial part of medical leaves. In assessing costs, one makes assumptions about the future that may or may not pan out. If an employer decides to pay the cost of leave privately after receiving an exemption from the tax, it may opt back into the program a later year and pay the tax. So the risks of privately paying the cost of leave can be limited year by year.
To estimate the tax liability for comparison to private payment, see https://www.mass.gov/info-details/calculate-your-paid-family-and-medical-leave-contribution
How do I apply for an exemption from the PFML tax?
If an employer decides to insure privately for PFML benefits, it must make an application for an exemption to the Department of Family and Medical Leave through MassTaxConnect. Applications for a tax exemption will be accepted from April 29, 2019 through September 20, 2019. As part of the application for exemption, an employer must present a Private Plan for providing the paid leave benefits.
What must a Private Leave Plan contain to meet the requirements for a tax exemption?
A Private Leave Plan must meet a number of legal requirements to receive the state tax exemption. For example, it must:
- Provide the same or higher benefits than those provided under the PFML. Paid leave under PFML for an employee in any year is capped at $850 per week up to 26 weeks.
- Show that the net cost to the employees under the Private Plan is not more than the taxes they could be charged under the PFML.
- Provide the same or better rights, benefits and protections to participants as the PFML. For example, leaves must be allowed for all the same situations as the PFML. In addition, the plan must provide that an employee may return to his or her job at the end of the leave (with some exception), allow for intermittent leave in certain circumstances, and protect the employee from retaliation for taking leave.
What are the notification requirements and deadlines?
Massachusetts requires that employees be notified of their PFML rights by June 30, 2019. There are two types of notices; one that must be posted in a conspicuous place in the office, and another delivered to PFML participants. Employers should receive and retain employees’ and contractors’ written acknowledgements evidencing receipt of the required notice.
For notices, see https://www.mass.gov/lists/paid-family-and-medical-leave-downloads-for-massachusetts-employers#employer-written-notices-to-employees-