New Paid Family Leave Rules for Massachusetts Employers

A law introducing Paid Family and Medical Leave (PFML) for Massachusetts employees was passed in 2018. While PMFL leave options and benefits will not come into effect until January 2021, contribution regulations will come into effect on 1 October 2019. PFML will be funded by a new payroll tax: in addition to their own contributions, employers will be required to deduct PFML contributions from employees’ wages and make quarterly payments to the Department of Family and Medical Leave (DFML).

The PFML tax will obviously have consequences for payroll departments across Massachusetts: as an employer, now is the time to prepare your business and your payroll.

What benefits will PFML involve?

Under the new PFML leave law, employees will be able to take up to 12 weeks of paid leave for the following reasons:

• Caring for a family member suffering from a serious illness.
• Spending time with a child in the first 12 months after birth - or in the first 12 months after adoption or foster care placement.
• Managing family affairs if another family member is absent due to military service.

PFML also allows for up to 20 weeks of medical leave if an employee is unable to work because they are suffering from a serious illness.

How will PFML be funded?

A new payroll tax will fund the PFML leave allowance. Employee contributions will be withheld at source while employer contribution requirements will vary by number of employees. The rates at which PFML will be charged are as follows:

For employers with less than 25 employees,

• PFML tax is withheld from employee wages at 0.378%
• Employer contributions are not required

For employers with 25 employees or more,

• PFML tax is withheld from employee wages at a rate of 0.75%
• Employers contribute 0.372% and employees contribute 0.378%

Is there an income limit on the PFML tax?

PFML tax is subject to an income limit - which matches the limit on the state’s Social Security tax. In 2019, that limit is $132,900 and, like the Social Security limit, will typically be reset on an annual basis.

For 2019, the PFML limit will be calculated from the start of an employee’s contribution withholdings, rather than their year-to-date wages.

When does PFML withholding begin?

Employers must start withholding PFML tax from 1 October 2019 with the first contributions due to the DFML on 1 January 2020. This means all payroll measures to facilitate the collection and payment of PFML tax should be in place before those dates. It’s worth bearing in mind that the state government of Massachusetts has not finalised the filing and payment methods for PFML so these could change by 1 January 2020.

Are any businesses exempt?

Some businesses are exempt from PFML law - namely those that already have a Paid Leave Plan in place which meets or exceeds the benefits offered by the state plan. Businesses wishing to file for exemption should submit details of their private plan by 20 December 2019.

What should employers do now?

With the October deadline imminent, if you haven't already prepared your existing pay infrastructure for PFML, there's no time to lose. As an employer, you should be focusing on helping your payroll team adjust, and communicating the change to your employees. The DFML has a range of online resources to help employers transition to the new rules, and to help their employees understand the process.

For more information on the United States' tax and social security system, explore activpayroll's Global Insight Guide to the USA.