Hunton Employment & Labor Perspectives

Paid Family and Medical Leave, or PFML, is fast approaching and Massachusetts employers need to begin preparing for the upcoming July 1, 2019 effective date.

Not only do employers need to understand their obligations, but there are affirmative actions they must take now – which is well in advance of the January 1, 2021 commencement of the benefits taking effect.

Overview of PFML

 The PFML law creates an insurance program administered by the Massachusetts Department of Family and Medical Leave (Department) that is funded by payroll contributions from employers and covered individuals.

 Beginning, January 1, 2021, the PFML law will require employers to provide eligible employees, and in some cases, independent contractors and self-employed individuals, with up to 26 weeks in the aggregate of paid, job-protected family and medical leaves of absence in a single benefit year (52 consecutive weeks from the employee’s eligibility date).

Although workers cannot begin taking leave under the PFML law until 2021, employers face the upcoming deadline of June 30, 2019 to comply with certain notice and posting requirements of the PFML law. Employers should consult with employment counsel to ensure compliance and discuss approaches to satisfying the new PFML law obligations that best fits their business.

What Do I Need to Do to Meet the June 30, 2019 Deadline for Notice & Posting?

By June 30, 2019, employers must notify employees and independent contractors of their PFML benefits by:

• displaying the mandatory workplace poster provided by the Department at each Massachusetts location in a highly visible spot;
• providing written notice to current employees (full-time, part-time, seasonal), contractors, and new employees of PFML benefits, contribution rates, and other provisions within 30 days of hiring; and
• collecting signed acknowledgements from employees and independent workers.

The written notice can be provided electronically or in paper form and must include the opportunity for the recipient to acknowledge receipt or decline to acknowledge receipt of the information. Employers must collect and maintain these acknowledgements in either paper form or electronically.  Employers that fail to provide the required notice can face a fine of $50 per individual for a first violation, and $300 per individual for a subsequent violation.

Am I Covered by the PFML Law?

The PFML law applies to all private employers in Massachusetts, even companies with just one employee in the state.  However, employers with fewer than 25 covered individuals are not required to pay the employer share of contributions to the PFML trust fund.  Such businesses still must collect the workers’ share of contributions and satisfy the PFML law’s notice and posting requirements.

How Do I Contribute to Support the PFML Law?

The PFML law provides eligible employees and contractors a maximum of 26 weeks of paid leave in a single benefit year. Employees must meet certain financial eligibility requirements (i.e., have approximately 15 weeks or more of earnings and have earned at least $4,700 in the 12-month period before applying for leave). The weekly benefit amount will be equal to the portion of the employee’s average weekly wage that is less than or equal to 50% of the state average weekly wage replaced at a rate of 80%, plus the portion of the employee’s average weekly wage that is more than 50% of the state weekly wage replaced at a rate of 50%.

Beginning July 1, 2019, all Massachusetts employers will be required to start making financial contributions to support the paid leave program at an initial rate of 0.63% of each employee’s wages on the first $132,900 of an individual’s annual gross earnings.  The gross earnings threshold may be adjusted annually.  The 0.63% contribution rate is split between contributions of 0.52% for medical leave and 0.11% for family leave.

The PFML law allows employers to deduct up to 100% of the 0.11% family leave contribution and up to 40% of the 0.52% medical leave contribution from compensation paid to employees and covered contractors. Employers with fewer than 25 covered workers in Massachusetts do not have to pay the employer share of the medical leave contribution to the PFML trust fund. While the PFML law allows employers to deduct a portion of the required contribution from each worker through the implementation of a payroll tax, the employer is ultimately responsible for remitting the full 0.63% contribution on behalf of its workers.

The Department published a calculator to help employers estimate PFML contributions.

 Can I Be Exempt from the PFML Law?

Possibly.  Employers already providing paid leave benefits to their employees can apply for an annual exemption through the MassTaxConnect portal. To qualify for the exemption, the employer’s private plan must be as generous as the benefits provided by the PFML law and cannot require a greater employee contribution than allowed under the PFML law. Employers may not seek an exemption for a private plan that covers certain employees and not others.  In order to receive an exemption, a private plan must apply to all covered individuals associated with a given employer tax identification number.

When Should I File for an Exemption?

The application is available now; although employers have until September 20, 2019 to file for an exemption.  The Department will review and convey acceptances of applications on a rolling basis after that date.  Applications must be approved in the quarter prior to the quarter in which they go into effect, which means that employers who fail to file for an exemption by the September 20 deadline will be liable for contributions to the PFML trust for the quarter beginning July 1, 2019.

Generally speaking, an acceptance will be effective for one year, and may be renewed annually.  If an application for exemption is denied, the employer may re-submit the same plan for supplementary review by the Department.

Do I Have Any Reporting Obligations?

Yes. Employers are required to provide the first quarterly report through MassTaxConnect in October 2019.  Employers must include information for employees, 1099-MISC workers and self-employed individuals if more than 50% of the employer’s workforce consists of self-employed individuals. Employers are expected to provide at least the name, social security number, and wages paid or other earnings for each employee and contracted service provider.

Based on the quarterly report, the Department will calculate the total quarterly contribution owed by the employer, which must be remitted within 30 days after the end of the quarter. An employer that fails or refuses to make the required contributions will be assessed a fine of 0.63% of its total annual payroll for each year it failed to comply, in addition to the total amount of the benefits paid to covered individuals for whom the employer failed to make contributions.

Action Items

Don’t let the January 1, 2021 fool you – employer preparation must start now.  In particular, employers should:

• Post the mandatory poster issued by the Department and draft written notices to be distributed to employees and independent contractors no later than June 30, 2019 informing them of their rights and obligations under PFML law.
• Establish a MassTaxConnect account for submission of quarterly reports, requirement contributions, and exemption applications.
• Determine whether to apply for an exemption. Employers that offer a private insurance plan that provides benefits granter than or equal to the benefits provided by the PFML law may be eligible for an exemption and wish to opt out of the program.  Although employers may file for an exemption as late as September 20, 2019 for the first quarter contribution, employers should file as soon as possible to allow for sufficient time for follow-up review in the event the application is denied.
• Employers who do not file for an exemption should determine whether to require employees to contribute to the PFML law trust fund through wage deductions. In this case, employers should begin preparing their payroll departments to begin deducting employee premiums by July 1, 2019.

Revise employee handbooks and/or leave policies so that updated policies are in place when paid leave is available in January 2021.