Casner & Edwards

Client Alert: PART I: Massachusetts Paid Family and Medical Leave – First Deadline is Less than a Month Away. Are you ready?

Please note that the deadlines and contribution rates in this client alert have been amended by a new law enacted on June 13, 2019.

By: Renee Inomata and Stéphanie Smith

As we reported earlier this year, in June 2018, Massachusetts Governor Charlie Baker signed the “Grand Bargain,” which, among other things, created a new paid family and medical leave benefit program (M.G.L. c. 175M) funded through a payroll tax and administered by the Department of Family and Medical Leave (“Department”). Although the regulations are not set to be finalized until July 1, 2019, employer obligations kick in by June 30, 2019. Here is a summary of key concepts under the Paid Family Medical Leave (PFML), and key dates to keep in mind. Some of the key dates may change as the regulations are finalized. 

Summary of the PFML

In a nutshell: The PFML provides eligible workers income replacement benefits, through a payroll tax program, while they are out from work on qualifying family or medical leave. Although benefits do not become available to employees until January 1, 2021, employers must begin making payroll deductions on July 1, 2019, and must remit the required contributions to the state by October 31, 2019, for the quarter ending September 30, 2019. Employers may apply to the Department for an exemption from the program (for the family or medical leave portion of PFML, or both), if they have alternative arrangements to provide at least what the PFML program will provide.

Preparing for PFML

Although PFML benefits do not become available until January 2021 (some kick in only in July 2021), employers already face a host of obligations and must get ready now. Below is an overall timeline employers may use as a guide. 

Here are the first five steps that employers must take immediately to get ready for the PFML:

Step 1:    Determine if you are a covered employer or a covered business entity
Step 2:    Determine which ones of your workers are covered by the law
Step 3:    Determine whether to seek an exemption
Step 4:    Determine your contribution obligations, if contributing to the state program
Step 5:    Notify your workforce by June 30, 2019

Step 1:    Determine if you are a covered employer or a covered business entity

Most likely, the answer is “yes!” The PFML applies to most private employers with at least one Massachusetts employee, including:

  • Employers who are located in Massachusetts;
  • Non-profit organizations and religious institutions;
  • Out-of-state employers with employees who work in Massachusetts; and
  • A “covered business entity,” which means a business or trade that contracts with Massachusetts 1099-MISC individuals for more than 50% of its workforce.

The Department has currently taken the position that religious organizations exempted from the unemployment statute are covered by the PFML.

Step 2:    Determine which ones of your workers are covered by the law

The PFML covers:

  • Employees who work in Massachusetts (unless the employee works for a city, town, or other local government employer, although those entities can opt into the program);
  • Employees who perform some work in Massachusetts and the worker’s work is directed or controlled from Massachusetts or, if the work is not directed or controlled from any particular state, the individual is a Massachusetts resident. (I.e., any employee to whom you issue a W-2 for services in Massachusetts);
  • Independent contractors (“self-employed individuals”) who work for a covered business entity and receive a 1099-MISC from the entity for whom they render services, IF the individual is a Massachusetts resident; and
  • Other self-employed individuals who opt into the program.
The law is intended to be broad in scope and reaches any Massachusetts worker on whose behalf an employer contributes to the state’s unemployment system.

Step 3:    Determine whether your organization will seek an exemption from the medical or family leave contribution obligations, or both

Covered employers can apply with the Department to be exempted from collecting, remitting and paying PFML contributions. 

Practice Tip: An exemption may be obtained for the family portion, medical portion or both portions of PFML. However, exemptions are not available for specific groups of covered individuals. Thus, if an employer offers a private plan, it must cover former employees and certain self-employed.

Although on first blush, an exemption may seem desirable, a private plan must meet all of the following requirements in order to qualify for an exemption:

  • The plan must provide benefits that are equal to or greater than the benefits available under the PFML (starting on January 1, 2021);
  • The plan must cover all individuals covered by the law;
  • Employers cannot require a greater amount of contribution from covered individuals than the law allows; and
  • The plan must offer covered workers the same rights and protections as those afforded by the PFML law.

In addition, if an employer is going to self-insure any portion of the benefits for which an exemption is being sought, then the employer will need to submit proof of bond coverage. The amount of the bond will depend on the exemption being sought (family leave, medical leave, or both) and the number of workers covered by the plan. For every 25 covered individuals, the Department requires a bond value of: $19,000 for a qualifying family leave plan; $51,000 for a qualifying medical leave plan; and $70,000 for a qualifying plan that covers both family and medical leave.

Application Process

Applications for exemptions are being accepted at this time for the period of contributions starting on July 1, 2019. Employers interested in applying for an exemption must do so by September 20, 2019 through MassTaxConnect. Exemptions are valid only for the benefit year for which they are granted; therefore, an application to be exempt from the PMFL must be renewed each year.

Applications will require a copy of the private plan(s) which will be used to replace all or part of the PFML requirements. As of this client alert, most insurance companies have not yet developed products which would supply a privately insured benefits for medical, family or both medical and family portions of PFML benefits. Similarly, the Department’s form to submit proof of self-insurance has not yet been developed. Thus, any application for exemption will need to rely on what the employer intends to provide as of January 2021 and on assumptions as to what private insurance and/or self-insurance may be available at that time.

Step 4:    Determine your contribution obligations, if contributing to the state program

Although benefits are not available until 2021, all Massachusetts employers and covered business entities (who have not been approved for an exemption) must begin contributing to the state’s trust fund starting on July 1, 2019. The initial contribution rate to the fund has been set to 0.63% (or 0.0063) of all qualifying earnings of all covered individuals. This rate will be reviewed annually.

The total contribution rate of 0.63% will be allocated between family leave and medical leave, based on the Department’s estimate of the anticipated costs of providing benefits for the two types of leaves.  The Department has initially decided to allocate 0.52% of the required 0.63% contribution to medical leave, and the remaining 0.11% to family leave.

Employers with an average total workforce in Massachusetts of 25 or more covered individuals (1099-MISC contractors count only if they comprise at least 50% of the employer’s workforce) must pay 60% of the required 0.52% medical leave contribution (0.312%), with the covered worker paying the remaining 40% of the required 0.52% contribution (0.208%). For family leave, employers are not required to pay any share of the required contribution, and 100% of that contribution (0.11%) can be deducted from the worker’s qualifying earnings. 

Smaller employers and covered business entities with an average total workforce in Massachusetts of less than 25 workers do not have to pay any share to the required contribution. 

Practice Tip: For smaller employers with an average total workforce in Massachusetts of less than 25 employees, the maximum employee contribution for medical leave is still 40%. 

A visual breakdown of the above is available on the Department website.

The required 0.63% contribution rate is subject to an annual cap, which tracks the annual limit established by the federal Social Security Administration for purposes of the Federal Old-Age, Survivors, and Disability Insurance program. For 2019, the income limit has been set at $132,900. 

Practice Tip: For 2019, whether an individual has reached this cap will be determined only on payments made between July 1, 2019 and December 1, 2019, not year-to-date income.

Step 5:     Notify your workforce by June 30, 2019

Massachusetts employers and covered business entities must display the required poster notifying employees of their rights under the PFML by June 30, 2019. The poster must be in a visible location, where it can be easily read. Employers must post the poster in English and in any language that is “the primary language of 5 or more individuals in your workforce” (assuming the translated poster is available from the Department).

Employers must also provide written notice of the law, including required contributions and available benefits, no later than June 30, 2019 to all covered workers. Notice is required to all covered Massachusetts employees. The notice must be provided in the individual’s primary language. 

Although not required, we also recommend that employers provide the required notice to all Massachusetts-based self-employed individuals, even if the business is not a “covered business entity,” to allow those individuals to opt-in. 

Practice Tip: Unless the employing unit is a “covered business entity,” the employer is not responsible for deducting or remitting the required PFML contributions to the state on behalf of a Massachusetts 1099-MISC worker who has opted into the program.    

The Department has issued the required poster and template notices in English and 12 other languages (including Haitian Creole, Portuguese, Spanish, Chinese and Vietnamese).

After June 30, 2019, employers are required to notify all new Massachusetts eligible workers within 30 days of hire. (Covered business entities will need to notify self-employed individuals at the time such parties contract for the individual’s services.)

In Part II of this alert, we review the benefits that will be available to covered workers starting on January 1, 2021, additional employee rights and protections under the law, and employers’ withholding and reporting obligations starting on July 1, 2019.

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