Following an announcement from Massachusetts Gov. Charlie Baker, along with state house and senate leadership, that an agreement to delay to the implementation of the Paid Family and Medical Leave (PFML) program had been reached, on July 13, 2019 the Massachusetts Legislature passed an emergency bill delaying its implementation for three months. Both the legislation and guidance from the Massachusetts Department of Family and Medical Leave change dates that employers must know.
Massachusetts is one of six states to have enacted a paid family and medical leave law. Originally, the state’s PFML law was passed as part of the “Grand Bargain” legislation, which also included changes to state wage and hours.
Employers will have questions about requirements and compliance for PFML. The following is a list of the most-frequently asked questions (click on the highlighted phrase for more details).
- What employers are subject to Massachusetts PFML?
- What are employer withholding and payment requirements in Massachusetts?
- Are there exemptions to premium payments?
- What are the Massachusetts employer reporting requirements?
- What reporting information is required of employers and employees?
- When do Massachusetts PFML employee benefits take effect?
- What are reasons for qualified leave?
- What should employers know about eligibility, limits, and appeals for Massachusetts PFML?
- What are the calculations for Massachusetts PFML benefit wages, and are there caps?
- What are Massachusetts PFML notification requirements for employers?
- What are the rights of employees who request or take PFML?
- What if employers in Massachusetts offer their own program?
- What additional clarifications are needed for Massachusetts PFML?
- Employer takeaways
The benefits to employees of Massachusetts’ PFML program will not be available until 2021 with some available on Jan. 1 and all by July 1. However, the program requires almost all businesses with employees from Massachusetts and certain independent contractors to meet requirements under the state’s program including making premium contributions based on wages. The deadline for employers to begin collecting contributions is now Oct. 1, 2019. If an employer provides a paid leave benefit, the employer might be eligible to receive an exemption from collecting, remitting, and paying contributions for paid family leave, medical leave, or both under the PFML law.
Businesses need to be aware that benefits are transferable between employers, so wages are cumulative for all employment.
What employers are subject to Massachusetts PFML?
There is no minimum employee limit that determines which size businesses are required to follow Massachusetts’ PFML requirements, but there are several exemptions. Almost all employers – even those out-of-state employers – with at least one Massachusetts employee, as well as certain independent contractors are subject to the new PFML requirements of the state.
Municipal employers, districts and their instrumentalities are exempt, along with self-employed individuals. However, these groups can opt-in to the program if they meet certain requirements (e.g., for municipal employers and districts, a majority vote by their governing body would enable them to opt-in).
What are employer withholding and payment requirements in Massachusetts?
Employers are subject to reporting requirements and quarterly premium payments, effective Oct. 1, 2019, in Massachusetts. This is similar to how businesses file state unemployment insurance (SUI) in the state.
The reporting and payment are due the end of the following month after the quarter is finished. For employers, this first reporting and payments are due Jan. 31, 2020.
The premium the employer must remit is an amount made up of a required employer portion and employee withholding. The premium consists of two distinct coverages – family leave (this supports an employee’s family members) and medical leave (this supports an employee’s own serious health condition). Additional details include:
- The total premium for both coverages (family and medical leave) has increased to 0.75 percent of individual wages, to account for the delay in collections and to ensure the trust is properly funded. In general, wages have the same definition as wages subject to SUI and these are the same wages they will report. However, this process will be unfamiliar to employers who are currently exempt from SUI, so they will need to evaluate how to track and calculate this.
- Employers who have more than 50 percent of their workforce comprised of independent contractors and are required to issue a 1099-MISC in the previous year must remit contributions in the same manner as they would an employee for the 1099-MISC individuals. Note: A business is required to issue a 1099-MISC for persons who are not employees but have received payment(s) of $600 for services in the year.
- Wages subject to the premium are capped at Social Security limit ($132,900 for 2019).
- The 0.75 percent rate breakdown is as follows: 0.62 percent for medical leave and 0.13 percent family leave, with the employer able to deduct up to 40 percent of the rate required for medical leave from employee (so, up to .248 percent) while the employer must contribute 0.372 percent. Also, the employer may deduct up to 100 percent of the rate required for family leave, with no employer contribution required
Are there exemptions to premium payments?
There are exemptions to premium payments, including for employers with fewer than 25 employees. They are not required to pay the employer portion the of the premium (0.372 percent), but still must remit employee portion.
To determine employer size, an employer will calculate the company’s average total workforce. This calculation is the sum of the number of employees, including full time, part-time, and seasonal employees, on the payroll during each pay period, divided by the number of pay periods in the prior year. This is essentially done by taking a raw count of the employees reported without factoring in whether they are full-time, part-time, or temporary.
For employers with an average of more than 50 percent of their workforce as 1099-MISC contractors, they must add these individuals in the per pay period, as well. Additionally, it appears with current guidance that each business with a unique business ID number is counted separately regardless of whether they might be part of a controlled or affiliated service group.
What are Massachusetts employer reporting requirements?
Employers are required to report information that supports the administration of the program, and it is due at the same time as remittance of quarterly premiums. For eligible Massachusetts employers, they must ensure they have gathered all relevant information and withheld the appropriate amount from employees to meet the first reporting and remittance deadline by Jan. 31, 2020.
What reporting information is required for employers and employees?
Employer level information required
- Federal employer identification number (FEIN)
Employee level information reported
(includes Massachusetts 1099-MISC contractors that employer is required to contribute on behalf of)
- Social Security number (or individual taxpayer identification number)
- Wages paid or other earnings
When do Massachusetts PFML employee benefits take effect?
Beginning Jan. 1, 2021, employees may begin to apply for paid medical leave benefits under this program, which is for their own serious health issue and can be equated to short-term disability. Paid family leave, which covers leave to care for an employee’s family member, is available beginning July 2021.
What are reasons for qualified leave?
Similar to the federal Family Medical Leave Act (FMLA), reasons for qualified leave include:
- Bonding with a new child in the family: Either through birth, adoption or foster care placement of a child up through age 18 within the first 12 months (benefits available Jan. 2021)
- Care of a family member with a serious health condition*: Physical and psychological conditions are eligible, and qualified family members include a child, grandchild, grandparent, parent (including spouse or domestic partner’s parents), sibling, spouse or domestic partner of an employee. This also includes biological, adoptive, foster or stepchildren. (available July 2021)
- Care of a family member who is a covered service member: This generally is to cover recovery for conditions or injuries sustained or aggravated in the line of duty. The limits to care for these family members are more generous. (available Jan. 2021)
- Qualifying exigency - active duty or impending active duty in the Armed Forces: Includes a spouse, child, or parent and is similar to qualifying exigencies as defined by federal FMLA. These include but are not limited to leave for issues that arise from short-term deployment, childcare and school activities, and to attend military events. (available Jan. 2021)
- Unable to work due to serious health condition*: This is medical leave. (available Jan. 2021)
* A serious health condition is defined as an illness, injury, impairment or physical or mental condition that involves inpatient care in a hospital, hospice or residential medical facility; or continuing treatment by a health care provider. Continuing treatment by a health care provider is defined by very specific criteria in the proposed regulation.
What should employers know about eligibility, limits, and appeals for Massachusetts PFML?
Employers (and employees) should know that benefits are transferrable between employers, so wages are cumulative for all employment.
Eligibility for family and medical leave benefits is determined if an employee meets the financial eligibility test as defined by the state. To qualify for benefits, an individual must have earned enough in wages or contract payments during the preceding 12 months that are subject to Massachusetts PFML contributions.
There are limits on the amount of paid leave an employee can take, capping at 26 weeks combined in a year for all PFML.^ However, each type of leave has its own maximum, including 20 weeks for medical leave, 12 weeks for family leave (bonding with a child, care for qualified family member’s serious health condition – excluding a covered service member – or qualifying exigency for armed services), and 26 weeks for family leave for a covered service member.
^-Year is a rolling period beginning the Sunday immediately preceding the first day of the leave, not a calendar year
What are the calculations for Massachusetts PFML benefit wages, and are there caps?
The weekly benefit will be 80 percent of an employee’s average weekly wage up to one-half or less of the state average weekly wage (AWW). For an employee whose average weekly wage is more than half of the state AWW, the employee shall receive a benefit rate of 50 percent of that.
An employee’s weekly average wage is derived by using the same base period for state unemployment insurance. For self-employed individuals, the AWW is calculated by taking the two highest-paid quarters in the preceding 12 months and dividing by 26.
There is a maximum weekly cap of $850 for family and medical leave that occurs after Jan. 1, 2021, and by Oct. 1 each year the amount of the maximum weekly benefit will be adjusted to 64 percent of the state AWW – with that adjusted maximum weekly benefit taking effect the following Jan. 1.
There are several other aspects of the program that employers and employees must be aware of:
- Usually, there is a seven-day waiting period before paid leave benefits start, but employees may use sick, vacation, and other paid leave in those seven days.
- An employer cannot compel an employee to exhaust personal, sick, or vacation time prior to taking leave.
- Massachusetts PFML benefits may be coordinated with or offered concurrently with other PFML leaves, but employee must receive the greater of the various benefits across the leaves. The employer also must provide this requirement in written notice to employees.
Employees can access additional temporary disability benefit wages by using their employer-provided leave policy to supplement the state benefit. However, if the policy benefit combined with the state program benefit exceeds the individual’s average wage, the state benefit would be reduced. Essentially, an employee can’t receive more in benefits than their average wage allows.
What are Massachusetts PFML notification requirements for employers?
Employers must post a notice of the program – provided by the state – in a highly visible location, and be mindful that there are language requirements for these notices based on the population of Massachusetts and the language make-up of the employer’s workforce. The poster must be in English and each language that is the primary language of five or more employees, provided such translations are available by the state’s Department of Family Leave.
Written notice to employees and independent contractors
Employers have until Sept. 30, 2019, to provide their current workforce with a written statement of their rights under this program, and will be required to notify new hires within 30 days of their first day of employment. Independent contractors must be notified when the business enters a contract for services. The state does provide model notices for employees and independent contractors.
Massachusetts will be updating these noticed to reflect the new changes.
What are the rights of employees who request or take PFML?
Generally, all employers are prohibited from discriminating or retaliating against an employee for requesting or taking paid leave. The program has robust employment protections to ensure the employee is restored to the same position held prior to leave, or an equivalent position with certain specifications, and retains employment benefits accrued prior to leave.
Employees who feel they have been subject to retaliation or discrimination in regard to requesting or taking paid leave have three years from the alleged violation to institute a civil action and may be untitled to as much as three times their lost wages.
Employers also are required to continue an employee’s health insurance during leave, but if the employee contributes a portion to their premium the employer can require they continue to pay their portion while on leave. Because the employee’s paycheck comes from the state during leave, and there is not known whether the state would be able to withhold from the benefit, the employer must coordinate getting the employee’s portion of the premium.
What if employers in Massachusetts offer their own program?
Employers have the ability to request an exemption from the state plan for medical and/or family leave if the employer meets certain requirements. Notably, the employer may request an exemption from the medical leave contribution, or both contributions.
To be approved for an exemption, an employer’s private plan must provide benefits to the employees that are at least equivalent to the benefits employees are entitled to as part of the state’s family and medical leave program, and they may cost more to the employees. Employers must request an exemption by submitting their application through the Department of Revenue’s MassTaxConnect.
Employers seeking an exemption to contributions to the state plan received a deadline extension until Dec. 20, 2019. However, if the application is denied, the employer will be responsible for the entire quarter’s contributions. After this first quarter, the state will accept applications on a rolling basis, but applications must be approved in the quarter prior to the quarter the exemption goes into effect.
If an employer’s private plan is denied by the state, there is an appeal process, including requesting a follow-up review if the exemption is denied.
There are some specifics to sponsoring a voluntary plan, including:
- The plan can be self-insured or provided by a third-party insurer. However, self-insured plans must also be covered by a required bond amount determined by the size of the workforce.
- An employee has the right to job protection during any leave taken.
- An employee has the right to protections against retaliation from taking leave or exercising other rights under the PFML law.
- An employer is still required to report quarterly.
If an individual is self-employed but chooses to opt-in to PFML, the individual must adhere to the following requirements:
- Opt-in for both medical and family leave
- Initially participate for 3 years
- Must pay 100 percent of the premium (the individual is the employer and employee, and therefore responsible for both portions, which is 0.75 percent beginning October 2019.)
- Have coverage canceled if there is failure to make payments
- Not eligible for benefits until contributions are remitted for at two out of four completed quarters
Even if self-employed individuals are covered contract worker for some of their employment, the individual may still elect to remit contributions on additional income unrelated to the self-employment that is covered by mandate. If the individual inadvertently remits payments for self-employment that is covered, the department may refund the duplicate payments.
What additional clarifications are needed for Massachusetts PFML?
Recent guidance has answered questions of how specifically employers will need to support the new requirements, but there are still questions to be answered.
- It is currently unknown if the benefit payment is subject to Federal Income Tax (FIT), but if it is subject to FIT, will the department be able to withhold tax from the benefit payment? Also, it’s unknown if the benefit payment is subject to FIT, then what happens if there is a private plan? Will these private plans be required to withhold and/or inform employees of their federal income tax responsibilities?
- It is unknown how the state will determine the eligibility and benefits of employees with multiple employers, where one employer has an exemption for a voluntary plan.
- It is unknown how the business that is required to contribute for 1099-MISC contractors will determine if the contractor will be 1099-MISC contractor (met the $600 threshold) when the initial contract is for less than that amount.
- It is unknown how those who are self-employed and opt-in will determine which contract payment they are required to contribute to their premiums and which the business, due to the fact their workforce is over 50 percent contractors, is already making the contributions.
Employer Takeaways in Massachusetts
Employers should ensure they are gathering all the necessary information for reporting that is due in January 2020, including all wages from each Massachusetts employee and if necessary contractor information. This is particularly important for employers who are exempt from SUI as they may not have gathered and calculated this information previously.
Paychex will continue to monitor developments around the Massachusetts Paid Family and Medical Leave program as the state continues to finalize regulations. It is recommended that employers update their handbooks appropriately and are prepared to support the new policy.