On the heels of the welcome news that employers have three more months to prepare for Massachusetts Paid Family and Medical Leave (“MAPFML”), last week the Massachusetts Department of Paid Family and Medical Leave (the “Department”) issued the final MAPFML regulations ahead of schedule. These regulations will be final and effective on July 1, 2019. Now, employers and employees alike have a few months to digest the final regulations (“Regulations”) before contributions begin on October 1, 2019. This blog post provides an overview of the Regulations and summarizes the key requirements of MAPFML, and serves as a primer on the private plan exemption process, which is explored in further depth here.
- July 1, 2019: Department to release final MAPFML regulations
- September 30, 2019: Notice to workforce of contribution rates and leave benefits
- October 1, 2019: Payroll withholdings for MAPFML begin
- December 20, 2019: Applications for a private plan exemption due
- January 1, 2020: Contributions for first quarter of MAPFML (10/1/19 – 12/31/19) due
- January 1, 2021: Commencement of (i) 12 weeks of paid family leave for birth, adoption or foster care; (ii) 20 weeks of paid medical leave for own serious health condition; and (iii) 26 weeks of paid family leave to care for covered service member
- July 1, 2021: Commencement of 12 weeks of paid family leave for family member’s serious health condition
What Employers Need to Know
Contribution Start Date and Contribution Rates: Rather than beginning on July 1, 2019, contributions for MAPFML into the state trust will now begin on October 1, 2019, giving employers and covered business entities another three months to prepare for the payroll tax implementation and inform their workforces. To make up for the delay in implementation, the contribution rate has been updated to 00.75% of wages. Of that 00.75% total contribution amount, the split is as follows: 17.30% for family leave and 82.70% for medical leave. The fixed contribution rates are subject to change by the Department on a yearly basis. Contributions for the first quarter of MAPFML (i.e., October 1, 2019 – December 31, 2019) will be due on January 1, 2020. The Department provided an updated timeline here reflecting these new dates. The breakdown of the total contribution rate depends on whether an employer or covered business entity has an average total workforce of more or less than 25 workers:
Employers and Covered Business Entities with more than 25 workers: these larger entities are responsible for a minimum of 60% of the medical leave contribution (00.372% of earnings), but are permitted to deduct from employees’ earnings up to 40% of the medical leave contribution (00.248% of earnings) and up to 100% of the family leave contribution (00.13% of earnings).
Employers and Covered Business Entities with less than 25 workers: For smaller entities, the contribution is 00.378% of earnings. Of that 00.378% total contribution amount, there is a split: 34.60% is a family leave contribution and 65.40% is a medical leave contribution. Employers may deduct up to 100% of these contributions from covered individuals’ earnings.
The Regulations still permit an employer or covered business entity to deduct “differing percentages” from employees, so long as they are not deducting more than the maximum percentages permitted under the law.
Notification Deadlines: In line with the updated contribution timeline, employers and covered business entities now have until September 30, 2019 to notify their workforces of the contribution rates and leave benefits. The Department issued an updated workplace poster and updated notice forms, reflecting the new dates and contribution rates, available here. Note that the notice forms now differ depending on whether an entity has a workforce of more or less than 25 workers. The Department also issued an updated rate sheet (available at the link above) to be distributed to covered individuals who were already provided notice prior to the delay in the law. The updated rate sheet does not need to be signed by covered individuals; however, employers and covered business entities must keep record of the distribution. Additionally, while the number of 1099 workers must be included in workforce headcounts, the business does not need to provide notice to 1099 workers unless the business is a covered business entity (i.e., more than 50% of its workforce is made up of 1099 workers). Notices may still be provided and obtained electronically, so long as the covered individual has the opportunity to acknowledge or decline to acknowledge receipt.
Leave Entitlements and Benefits: The leave entitlements and benefits under the law for covered individuals remain unchanged:
Beginning January 1, 2021:
- 12 weeks of paid family leave in a benefit year for the birth, adoption, or foster care placement of a child, or because of a qualifying exigency arising out of the fact that a family member is on active duty or has been notified of an impending call to active duty in the Armed Forces;
- 20 weeks of paid medical leave in a benefit year if the worker has a serious health condition that incapacitates them from work; and
- 26 weeks of paid family leave in a benefit year to care for a family member who is a covered service member undergoing medical treatment or otherwise addressing consequences of a serious health condition relating to the family member’s military service.
Beginning July 1, 2021:
- 12 weeks of paid family leave in a benefit year to care for a family member with a serious health condition.
Covered individuals are entitled to a maximum weekly benefit amount of $850/week during any period of approved leave. Employees are entitled to 26 total weeks, taken together, of paid family and medical leave in a single benefit year.
Penalties for Failure to Comply: The Department significantly increased the penalty for an employer or covered business entity that fails to make the required contributions. The Department (i) may assess an employer or covered business entity the total annual payroll for employees and covered workers each year or fraction thereof that the employer or covered business entity failed to make contributions, multiplied by the “then current annual contribution rate” and (ii) the employer or covered business entity may be required to pay into the state trust the total amount of benefits paid to covered individuals from the state’s trust for whom the employer or covered business entity failed to make contributions. This penalty permits the Department to recoup any costs for contributions and benefits that an employer or covered business entity failed to collect or offer to a covered individual. The Department may waive or modify any penalty or assessment upon a showing of good cause.
Private Plan Exemptions:
In lieu of contributing to the state trust, an employer or covered business entity can apply for a private plan exemption. A private plan must confer all the same benefits on a covered individual as he or she would receive under the MAPFML and through the state’s trust.
The Department extended the deadline to apply for a private plan exemption to December 20, 2019, and added some teeth to the final regulations about private plan use. The Department also updated its website on how to apply for the private plan. Upon submission of an application, the Department may request that employers and covered business entities make available information related to (i) their businesses, (ii) the type of plan offered, and (iii) the decision to purchase a plan or be self-insured. If an exemption is approved (which should be known within 1-2 business days), the employer or covered business entity must upload a copy of the plan upon which the exemption is based, and proof of bond coverage. The employer or business entity will be notified if the exemption is denied and will be able to request a follow-up review. The Department just published its bond form, available here, which describes the purpose and requirements related to the surety bond.
Key Changes to Regulations Regarding Private Plans:
- Frequency of Submitting a Plan: The Regulations specify that an employer can submit a private plan application not more than once a quarter (though the employer may request review of a denial). The bond required for the self-insured plan must be a surety bond, and must be issued by a bond company licensed to do business in the Commonwealth.
- Reporting and Record Keeping Requirements: Employers and covered business entities with approved plans must keep all reports, information, and records related to the approved plan, including all claims for benefits, for a period of 3 years and must provide this information to the Department upon request. Failure or refusal to respond to requests for information from the Department can result in withdrawal of approval of a private plan.
- Withdrawal of Approval: The Department ultimately controls whether withdrawal from approval of a private plan will occur. In addition to withdrawing approval for failure to pay benefits, maintain bond coverage, or misuse of private plan trust funds (if collected), the Department may also withdraw approval when there are “adverse changes to the financial condition or licensure status of the employer or covered business entity, private plan insurer, or surety company responsible for the bond.” Benefits must be maintained under a private plan until the effective date of termination or non-renewal, and an employer or covered business entity must notify the Department that it does not intend to renew the plan at least 30 days’ prior to the date of termination. Moreover, even if a plan expires, the employer or covered business entity must continue to provide benefits to a covered individual for any leave that began prior to the expiration of the plan.
- Penalties for Abuse of Private Plan: The Department also significantly increased the penalty for an employer or covered business entity that fails to maintain their private plan as approved by the Department. Similar to the penalty for failing to make contributions, the Department (i) may assess an employer or covered business entity the total annual payroll for employees and covered workers each year or fraction thereof that the employer or covered business entity failed to maintain the plan, multiplied by the “then current annual contribution rate” and (ii) the employer or covered business entity may be required to pay into the state trust the total amount of benefits paid to covered individuals from the state’s trust. This effectively would allow the Department to recoup any costs for contributions and benefits that a private plan failed to collect or offer to a covered individual. The Department also closed a significant loophole left open by the draft regulations: if an employer received a private plan exemption on July 1, 2019, but did not renew the plan the following year (before benefits began in January 2021), the employer could effectively avoid paying into the state’s trust for a full year of contributions with the exemption. Now, the Regulations state that the penalty outlined above will apply to any employer who fails to maintain or renew a private plan for future benefits scheduled to begin in January 2021.
For an in-depth analysis of the private plan exemption, please reference this blog post.
Other Changes in the Regulations:
Removal of Massachusetts Earned Sick Time: The Regulations removed the Massachusetts Earned Sick Time Act, a leave law that runs concurrently with MAPFML, now making the Regulations consistent with the statutory language in M.G.L. c. 175M. While the sick time statute prohibits employers from requiring employees to exhaust their earned sick time during a leave period, the draft regulations permitted MAPFML and sick time to run concurrently. Now, the Regulations employers must permit employees to use and store sick time separate and apart from their MAPFML leave entitlements. Note, however, that under the Massachusetts Earned Sick Time Act, employers are not required to allow carryover of sick time in every scenario (for example, if employees are entitled to earn sick time in a lump sum at the beginning of the year). This may prompt employers to revisit their sick time policies.
- Child – For the purposes of leave to take care of a child, the regulations no longer require that the child be under the age of 18.
- Employment – Now more closely tied to the statutory language, the definition of “employment” under the regulations excludes any services that are not covered under the definition of “employment” under M.G.L. c. 151A § 6.
- Financial Eligibility Test – Though the definition remains mostly unchanged, the regulations now account for the fact that the $4,700 floor (i.e., earning $4,700 in the last four completed calendar quarters) will be subject to annual adjustment by the Massachusetts Department of Unemployment Assistance. Notably, a former employee is still entitled to MAPFML benefits if he or she (i) meets the financial eligibility test under the law and (ii) has been separated from an employer for not more than 26 weeks.
- Incapacity – The new Regulations moved away from a general definition of “incapacity” (i.e. “an inability to work, attend school or perform other regular daily activities”) and instead tied it specifically to the performance of one’s specific job functions (i.e. “an inability to perform the functions of one’s position”).
- Intermittent Leave – While employers are permitted to designate the period of intermittent leave increments, the minimum designated increment used may not be greater than four hours. Many employers will likely synchronize their intermittent leave increments with increments already used for leave provided under Massachusetts’s Earned Sick Time or the federal Family and Medical Leave Act (“FMLA”).
- Pay Period – Given that many employers use varying pay periods across the Commonwealth, the final regulations added in a definition of “pay period.” A pay period is now defined as “the shortest pay period used by a business or trade for regular payments to any group of employees of the business or trade.”
Changes Regarding Job Protection: While a covered individual is still entitled to significant job protection and anti-retaliation measures during leave, the Regulations clarify that an individual hired for a specific term or only to perform work on a certain project is not entitled to the same restoration rights if the employment term or project has concluded. This revision is likely intended to give covered business entities that hire covered contract workers more comfort when hiring workers for fixed jobs.
Issues of Concern Not Addressed by the Final Regulations:
Services Localized in the Commonwealth: Notably, the definition of a “covered individual” remains unchanged, despite many practitioners taking issue with the “localized within the Commonwealth” definition set forth in the draft regulations. This definition will require many employers to use their best judgment regarding some of the most nuanced employment situations about whether an employee’s services are “localized” in Massachusetts.
Treatment of MAPFML with Employer Provided Short Term and Long Term Disability Benefits: The Regulations also did not address the treatment of long-term and short-term disability benefits in conjunction with MAPFML benefits. The weekly leave benefit amount provided from the state’s trust will be reduced by any long-term disability benefits of an employer, but will only be reduced by short-term disability benefits of an employer if the aggregate of state-provided benefits and short-term disability benefits exceeds the covered individual’s average weekly wage. This may cause employers to reexamine their long-term and short-term plans and perhaps reduce such benefits, when some or all of the benefits may be potentially covered by the MAPFML.
Treatment of Employer-Provided Accrued Leave: Though the length of MAPFML leave is not extended by use of other accrued leave, employees still have the choice to use employer-provided accrued leave or MAPFML benefits during a period of leave. Therefore, while employees can decide to use PTO to receive their full pay for a portion of MAPFML leave, employers cannot require employees to exhaust their accrued PTO during leave.
While there is much to digest about the implementation of MAPFML, the finalized regulations and expanded time frame give employers a much-needed buffer to notify their workforces, consult with counsel about whether a private plan exemption is right for them, and prepare their payroll (either internally or externally) for employee deductions. Over the summer, the Department is holding educational sessions for all members of the public to ask questions and learn more about the law. The session schedule is available here. We will, of course, continue to keep our readers updated.