The new law’s start date has been pushed back to October 1, 2019. Will you be ready?
By Sudha Vishwanath, CPA and Tax Manager – RBF Advisors and Accountants
Last summer, Massachusetts Governor Charlie Baker signed legislation authorizing the Paid Family and Medical Leave (“PFML”) program. But as the law’s mandated implementation date of July 1, 2019 approached, state officials acquiesced to calls by local business leaders to delay the start date by three months.
The most consequential impact of the change to businesses is that the collection of a new payroll tax to fund the program was pushed back to October 1, 2019. Although PFML won’t begin paying benefits to employees until January 1, 2021, there are a number of steps employers will need to take soon to comply with the new law.
Overview of PFML benefits
Employees will be entitled to up to 20 weeks of paid medical leave and 12 weeks of paid family leave per year. The maximum amount of combined family and medical leave an individual may take under the PFML is limited to 26 weeks per year. The benefit amount is based on an employee’s earnings and is capped at $850 weekly.
The state’s Department of Family and Medical Leave has launched a website providing guidance to both employers and employees about the program. Here are the highlights of this new law and timelines that employers are required to follow.
6 things employers need to know and do
- Who must participate? All Massachusetts employers must participate. Businesses that employ one or more workers are subject to the PFML law.
- Who is covered? Employers are required to submit contributions for all “covered individuals” in their workforce. W-2 employees will always be considered covered individuals. 1099-Misc contractors will also be considered covered individuals if the company’s average number of 2018 1099-Misc contractors is greater than the average number of 2018 W2 employees.
- Are small businesses obligated to contribute? If the number of covered individuals is less than 25, the employer will not be responsible for the employer portion of the medical leave contribution. Businesses with more than 25 employees must pay an employer contribution for PFML. All employers irrespective of the size of the workforce are required to begin withholding PFML contributions from covered individuals’ wages beginning October 1, 2019. Employers are required to submit the contributions on behalf of their covered individuals. The contribution is limited to the Social Security Wage base. Once the employee meets the year’s wage base, the employer no longer needs to contribute to PFML on that individual’s behalf.
- How will contributions be allocated? Employers with 25 or more covered individuals will be required to remit a contribution to the state of .75% of eligible payroll. The contribution can be split between covered individual’s payroll deductions and employer contributions. Out of a total contribution of .75% of eligible payroll, .62% of eligible payroll will be toward medical leave and .13% of eligible payroll will be toward family leave. Up to 100% of the family leave contribution can be deducted from a covered individual’s wages. Up to 40% of the medical leave contribution can be deducted from a covered individual’s wages. Employers are responsible for contributing the remaining 60%. Employers with fewer than 25 covered individuals will be required to remit amounts withheld from covered individuals but are not responsible to pay the employer’s share. Out of a total contribution of .75% of eligible payroll, .62% of eligible payroll will be toward medical leave contribution and .13% of eligible payroll will be toward family leave. Up to 100% of the family leave contribution can be deducted from a covered individual’s wages. Up to 40% of the medical leave contribution can be deducted from a covered individual’s wages. Employers do not have to contribute the remaining 60%.
- Employee communication. On or before September 30th, 2019 employers are required to provide written notice to their current covered individuals explaining details such as:
- benefits available to them under PFML
- covered individual contribution rates
- employer contribution rates (if applicable)
- job protections, and
- how to file a claim for benefits
In addition, employers must display a workplace poster prepared or approved by the state that explains benefits available to the workforce under the PFML Law.
6.Important dates to remember. Beginning October 1, 2019 employers must make payroll withholdings, based on contribution rates. The withholdings and employer contributions when applicable must be remitted to the Department of Family and Medical Leave 30 days after the end of each calendar quarter. PFML will begin paying benefits to employees on January 1, 2021.
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Sudha Vishwanath, CPA is a tax manager at RBF Advisors and Accountants in Woburn, MA. She can be reached at (781) 321-6065, extension 164 and at SudhaV@rbfpc.com.