27 July 2018 Maryland law allows small employer income tax credit for paid sick leave Recently enacted legislation (SB 134, Chapter 571) provides an income tax credit to certain employers with less than 15 employees which provide paid sick and safe leave to their employees. The legislation is effective July 1, 2018. As we previously reported, effective February 11, 2018, employers of 15 or more employees are required to provide paid sick and safe leave to their employees. Employers with less than 15 employees must at least provide unpaid sick and safe leave to their employees. Effective July 1, 2018, certain employers of less than 15 employees that provide paid sick and safe leave to their employees may apply for a refundable credit against Maryland state income tax. In order for the employer to be eligible for the tax credit, the employer must have provided paid sick and safe leave to a qualified employee who earns 250% or less of the annual federal poverty guidelines for a single-person household (According to the bill's analysis, in 2018, 250% of the annual federal poverty guidelines for a single-person household is $30,350.) The credit is equal to the lesser of $500 for each qualified employee or the total amount of qualified employer benefits accrued by qualified employees. A business must apply for and receive a tax certificate from the Maryland Department of Commerce to claim the credit. The Department will within 45 days approve or deny all applications that qualify for the credit on a first-come, first-served basis. The Department may issue tax certificates not exceeding $5 million annually. Employees whose primary work location is in Maryland must accrue sick and safe leave at a rate of one hour per every 30 hours worked. Employers with 15 or more employees must provide paid sick and safe leave; while smaller employers must provide at least unpaid sick and safe leave. Employers that have an existing paid time off (PTO) policy that provides leave in an amount equal to or greater than the amount that is provided for under the law do not have to provide additional leave. In determining whether an employer has 15 or more employees, the Department considers those employees employed in the state of Maryland. All employees employed in the state of Maryland count towards this determination, regardless of hours worked or status within the business. The count includes full-time, part-time, temporary, and seasonal employees over and under the age of 18 (although employers are not required to provide sick and safe leave to those employees under the age of 18). For employers whose employee count fluctuates around 15, employers should determine the employee count by calculating the average monthly number of employees during the immediately preceding year (add the number of employees working in each month of the previous year and divide by 12). Certain employees are exempt from the law, such as an employee that works less than 12 hours per week, or who works under certain circumstances as a real estate broker or agent, for a construction or temporary help employer, as an agricultural employee, or those individuals working on an as-needed basis in a health or human services industry. New employees hired after the February 11, 2018 effective date of the law must begin immediately to accrue sick and safe leave, but must wait 106 days from their date of hire to begin using earned sick and safe leave. The law applies to employers with employees whose primary work location is in Maryland, even if the employer is located out of state. For employees that work both in and out of Maryland for an employer, if the primary work location is in Maryland, then the employer must count all hours spent working both in and out of Maryland for accrual purposes. If an employee works primarily in another state but performs work in Maryland that is incidental to his or her work performed elsewhere, the employee would not be entitled to accrue sick and safe leave for those incidental hours or work performed in Maryland. However, if an employee performs the majority of his or her work in Maryland, the employee is entitled to accrue sick and safe leave for all time worked including any incidental work that is performed in another state. According to the Department, an employee is not entitled to accrue sick and safe leave during (1) a one-week pay period if the employee worked fewer than a combined total of 24 hours in the current and immediately preceding pay period; (2) a two-week pay period in which the employee worked fewer than 24 hours; or (3) a pay period in which the employee is paid twice per month and worked fewer than 26 hours in the pay period. See the Department's FAQs for the circumstances under which an employee must be allowed to use earned sick and safe leave. An employer must reinstate a separated employee's earned/unused leave if the employee returns to work after a separation of less than 37 weeks. Employees must be allowed to carryover up to 40 hours of unused sick and safe leave to the next year unless the employer awards the full amount of earned sick and safe leave at the beginning of each year. To avoid having to accrue sick and safe leave hours and allowing employees to carryover unused leave, employers may elect to award 40 hours of earned sick and safe leave at the beginning of the employer-established year (known as frontloading). By frontloading, the employer is not required to allow employees to carryover unused leave to the next year. Employers are not required to allow an employee to accrue more than 40 sick leave hours per year or use more than 64 hours of sick leave per year. Employers must provide to employees a statement of used and available paid and unpaid leave each pay period. This requirement may be satisfied with an online system to which employees have access. While the law does not require an employer to track employee leave in a specific manner, in the case of an employee complaint, the employer must be able to demonstrate to the Department how many hours the employee worked; how much sick and safe leave the employee accrued; and how much sick and safe leave the employee was allowed to use. The Department has released frequently asked questions about the law; an employee notice that employers are required to post; and model policies for employee handbook or other employee benefits documents. As we previously reported, earlier this year the Maryland legislature overrode Governor Larry Hogan 2017 veto of HB 1, the Healthy Working Families Act. Legislation (SB 304) that would have delayed to July 1, 2018, the effective date of the law, was passed by the Maryland Senate on February 8, 2018, but was voted down by the House Economic Matters Committee on February 16, 2018. In response to the veto override, the governor issued an executive order that created the Office of Small Business Regulatory Assistance, for the purpose of assisting small businesses in complying with the new law. Employers and other interested parties should send their questions and comments to small.business@maryland.gov and the emails will be used to develop guidance on the new law. The questions received, more than 2,000 as of March 9, 2018, have been compiled into the Frequently Asked Questions document, which may be found here. The law preempts Maryland localities from passing sick and safe leave laws of their own, retroactive to January 1, 2017. As a result, employers must continue to comply with Montgomery County's paid sick and safe leave law, which was enacted in 2016; but the law preempts Prince George's County's paid sick and safe leave law, which was passed in December 2017. For more information on the sick and safe leave law, see the Department's website.
Document ID: 2018-1520 | |||||||||
