In 2018, Massachusetts passed a new paid family and medical leave law. Although the leave benefits are not available until 2021, the state will begin collecting a payroll tax to build a fund for the program beginning on July 1, 2019. We have been fielding a number of questions from our clients about the payroll tax and what companies need to do now to prepare. Although the new Department of Family and Medical Leave is still ironing out many of the details, this is what we know so far:
Payroll Tax Basics
Massachusetts is scheduled to begin collecting the paid family leave payroll tax on July 1, 2019. The payroll tax will be 0.63% of the first $128,400 of an employee’s annual earnings.
The tax will be divided between a family leave contribution and a medical leave contribution. For 2019, the allocation will be 0.52% to medical leave and 0.11% to family leave.
The tax is also divided between an employer contribution and an employee contribution. For 2019, the required contribution will be:
- Employers: 60% of the medical leave contribution, equal to 0.312% payroll tax
- Employees: 40% of the medical leave contribution and 100% of the family leave contribution, equal to 0.318% payroll tax
Employers with fewer than 25 employees are exempt from the employer contribution.
The Department of Family and Medical Leave will set the contribution rate and the proportionate allocation between family and medical leave annually.
Private Plans and Payroll Tax Exemption
Employers can apply for an exemption to the payroll tax if they offer their employees a private plan with at least the same coverage as the state plan. Employers can elect to offer a private plan for family leave, medical leave, or both. To be eligible for the payroll tax exemption, a private plan must cover, at a minimum:
- Paid Family Leave (12 weeks per year): Employees may take up to 12 weeks of leave for the birth, adoption, or foster care placement of a child, to care for a family member with a serious health condition, or to address needs arising from a family member’s active duty military service or deployment.
- Paid Medical Leave (20 weeks per year): Employees may take up to 20 weeks of paid leave to address their own serious medical condition.
- Weekly benefit amount. The weekly benefit must be at least 80% of the employee’s wages up to 50% of the state average weekly wage, plus 50% of the employee’s wages above 50% of the average weekly wage. The state’s maximum weekly benefit amount is $850 for the first week, and 64% of the state average weekly wage after that.
Employers must apply to the Department of Family and Medical Leave for an exemption and approval of their private plan. If approved, the exemption will be good for one year, and must be renewed annually.
The Department of Family and Medical Leave is still preparing the exemption process. We anticipate that the Department will begin accepting exemption applications before the payroll tax takes effect in July, but we cannot be certain when the process will be ready.
Employers will be required to file quarterly earnings reports through the Department of Revenue’s MassTax Connect system. Employers must report earnings for all employees (including full-time, part-time, and temporary/seasonal workers) and independent contractors. The reporting requirements begin on July 1, 2019.
Employees May Take Eligible Leaves Starting in 2021
Most benefits will be available to employees beginning on January 1, 2021. Employees will be able to take paid family leave for bonding with a new child and service member-related leave, as well as paid medical leave.
Paid family leave to care for a family member with a serious health condition will be available starting July 1, 2021.
Begin working with your payroll companies to ensure that they are ready to calculate and withhold the appropriate payroll tax by July 1.
If you are interested in applying for an exemption to the payroll tax, begin working with your benefits provider to ensure that the paid leave benefits you are offering meet the requirements of the new law.
As always, feel free to contact us at any time if you have questions about the new law and how it affects your business.