What is the Massachusetts Paid Family and Medical Leave Act?
The Massachusetts Paid Family and Medical Leave (PFML) Act is a new state program that will provide temporary income replacement to eligible workers for certain family and medical reasons. The program will be funded by a percentage of the compensation paid to Massachusetts workers.
Massachusetts employers with a workforce of any size are required to start withholding Paid Family and Medical Leave contributions from covered individuals' wages starting on October 1, 2019. Depending on the composition of an employer’s Massachusetts workforce, an employer could be responsible for remitting contributions for both its Massachusetts W-2 employees and its Massachusetts 1099-MISC contractors.
What is the timeline of Paid Family and Medical Leave contributions and benefits?
September 30, 2019
: Employers are required to provide written notice to their current workforce by this date. All Massachusetts employers must display
a workplace poster
from the Department of Family and Medical Leave (DFML).
October 1, 2019
: Employers are required to begin deducting payroll contributions from wages and payments made to covered individuals. Covered individuals consist of MA W-2 employees and, in some instances, MA 1099-MISC contractors that make up a large part of a workforce. The composition of an employer’s workforce will determine the employer’s responsibilities and obligations.
December 20, 2019
: Employers applying for an exemption from the first quarter of required contributions must submit their approved plan application by this date.
January 31, 2020
: Contributions for the quarter October 1, 2019 through December 31, 2019 are due by this date. Employers will be required to continue filing these reports on a quarterly basis. The withholdings, along with any employer payments, are required to be remitted to the MA DFML within 30 days following the end of the quarter. Employers will be required to file their returns and remit contributions through their MassTaxConnect account.
What should employers be doing now?
Employers should be determining their workforce for purposes of the new withholding and filing requirements. An employer’s contribution responsibilities will depend on the average number of their covered individuals from the previous calendar year. Employers will need to report the size and make up of their Massachusetts workforce to the MA DFML for the calendar year January 1, 2018 through December 31, 2018. The size and make up of an employer’s Massachusetts workforce will determine if the employer’s 1099-MISC contractors are considered covered individuals and whether or not the employer is responsible for paying a share of the contributions.
How does an employer determine and count their workforce?
An employer’s Massachusetts workforce is the average number of the following from the previous calendar year:
- Massachusetts W-2 employees (includes both full-time and part-time)
- Massachusetts 1099-MISC contractors that perform services as an individual entity, live in Massachusetts, and perform services in Massachusetts
T
o calculate the average number of Massachusetts W-2 employees, add up the total number of W-2 employees that were paid each pay period in 2018 and divide that number by the number of pay periods. To calculate the average number of Massachusetts 1099-MISC contractors, add up the total number of 1099-MISC contractors that were paid each pay period in 2018 and divide that number by the number of pay periods.
These averages are used to calculate an employer's number of "covered individuals".
Employers will be required to report total workforce numbers, but will only be responsible for submitting contributions on behalf of their workforce members that are covered individuals.
Who is a covered individual?
Employers are required to submit contributions for all "
covered individuals
" in their workforce. Massachusetts W-2 employees will always be considered covered individuals. Massachusetts 1099-MISC contractors will also count toward the total number of covered individuals if they make up more than 50% of an employer’s total Massachusetts workforce. Your total Massachusetts workforce is the amount of Massachusetts W-2 employees and Massachusetts 1099-MISC contractors combined. If your 2018 Massachusetts 1099-MISC contractors average is greater than your 2018 Massachusetts W-2 average, then the Massachusetts 1099-MISC contractors are considered covered individuals.
What is an employer's financial responsibility?
Employers of all sizes will be required to remit the contributions for all covered individuals in their MA workforce on a quarterly basis. Larger employers with 25 or more covered individuals are responsible for paying a share of the required contribution whereas employers with fewer than 25 covered individuals are not required to pay the employer’s share of contributions.
Contributions are based upon a percentage of wages up to the Social Security income limit, which is $132,900 for 2019.
An employer’s contribution rate depends on their number of covered individuals. Employers with 25 or more covered individuals will be required to remit a contribution of 0.75% of
eligible wages
. Employers with fewer than 25 covered individuals must remit an effective contribution rate of 0.378% of
eligible wages
. The small employer contribution rate is less because these employers are not required to pay the employer share of the medical leave contribution.
Are there exemptions from the MA PFML Act requirements?
Employers that provide benefits greater than or equal to the benefits provided by the PFML Act may apply for an exemption from collecting, remitting, and paying PFML contributions. Approved plans can be self-insured or provided by an insurer so long as they start providing benefits by January 1, 2021. Employers applying for exemptions will need to answer questions regarding the scope, benefits, and requirements of the private plan. Applications for an exemption are filed electronically through an employer’s MassTaxConnect account.
EXAMPLE
ABC Company pays both W-2 employees and 1099-MISC contractors during the calendar year 2018. ABC Company's average number of Massachusetts W-2 employees is 17 and its average number of Massachusetts 1099-MISC contractors is 5. Based on the makeup of ABC Company's Massachusetts workforce, the Company has 17 "covered individuals". This is because W-2 employees are always covered individuals, whereas 1099-MISC contractors are only included as covered individuals if they make up more than 50% of the total workforce.
Starting October 1, 2019, ABC Company is required to remit Paid Family and Medical Leave contributions on behalf of its 17 covered individuals. The covered individuals can be responsible for up to 100% of the family leave contribution and 40% of the medical leave contribution. ABC Company is not required to pay the employer share of the medical leave contribution because it has fewer than 25 covered individuals. ABC Company can elect to cover a portion of either contribution.
ABC Company pays $850,000 in total eligible wages for its Massachusetts W-2 employees in the last 12 months. The eligible wages amount does not include any of the covered individual's wages that are above the social security cap of $132,900.
The estimated annual contribution for ABC Company is $3,213. The contribution is broken out as follows:
Family Leave: $1,105 ($850,000 x 0.13%)
Medical Leave: $2,108 ($850,000 x 0.62% x 40%)
ABC Company is not obligated to cover a portion of either contribution because it has fewer than 25 covered individuals. If ABC Company has 25 or more covered individuals, then it would be required to contribute the remaining 60% of the medical leave contribution. Although ABC Company is not obligated to pay, it can elect to cover some or all of the contribution amounts.
