As a reminder, effective July 1, 2019, employers must begin withholding and paying Massachusetts family and medical leave contributions at an initial rate of 0.63% of each employee's wages up to the 2019 Social Security wage base of $132,900.

The Massachusetts Department of Family and Medical Leave released the Paid Family and Medical Leave (PFML) workforce poster and employee notice template to its website. Employers are required to post the workplace poster in English and each language which is the primary language of five or more individuals in their workforce. The poster is available from the Department in several languages.

Employers with private family and medical plans may apply for a one-year exemption from the public plan by September 20, 2019 (deadline extended from June 30, 2019). The application is available through the employer's MassTaxConnect account.

By June 30, 2019 (deadline extended from May 31, 2019), employers and covered business entities must provide written notice to their current workforce of the PFML benefits, contribution rates and other provisions outlined by law. On an ongoing basis, employers must issue this notice to each new employee within 30 days of their first day of employment. The notice must be written in the employee's primary language.

Employers may use the template provided by the Department or create their own notice that includes:

• An explanation of the availability of PFML benefits
• The employee's contribution amount and obligations
• The employer's contribution amount and obligations
• The employer's name and mailing address
• The employer federal and state identification number
• Instructions on how to file a claim for PFML benefits
• The mailing address, email address, and telephone number of the Department

The notice, which may be provided electronically, must include the mandatory section for an employee or self-employed individual to acknowledge receipt or decline to acknowledge receipt of the information.?The employer may receive these acknowledgments in paper form or electronically.

Each business entity that uses independent contractors will also need to notify each Massachusetts 1099-MISC contractor in writing about available benefits when entering into a contract for services. The notice must be written in the contractor's?primary language. The business must obtain from each contractor a written statement acknowledging receipt of the notice or a statement indicating the contractor's refusal to acknowledge the notice.

Tax treatment of PFML contributions

According to the Department, the tax treatment of PFML contributions for both state and federal purposes is governed by federal tax law. The Commonwealth has requested guidance from the IRS on this question and others related to the tax implications of PFML contributions and benefits.

Note that absent specific guidance from the IRS, employee contributions for PFML must be withheld on after-tax basis (cannot be offered under a cafeteria plan on a pre-tax basis). See our special report.

Based on its own review of federal rules and following consultation with the Massachusetts Department of Revenue, the Department anticipates that the IRS will conclude that employee contributions should be withheld from after-tax wages. A definitive rule for proper tax treatment of Massachusetts PFML contributions will be available once IRS guidance is issued.

Payroll tax collection begins July 1, 2019

As we previously reported, effective July 1, 2019, employers must begin withholding and paying PFML contributions at an initial rate of 0.63% of each employee's wages up to the 2019 Social Security wage base of $132,900. Employers with 25 or more employees may withhold up to 40% of the medical leave portion of the contribution from employees' wages, and up to 100% of required contributions for family leave. (2018 HB 4640; EY Payroll Newsflashes Vol. 18, #118, 7-12-2018; Vol. 20, #035, 2-20-2019.)

The rate will be adjusted annually, not later than the October 1 before the new rating year. The apportionment between family and medical leave contribution rates will also be determined each year based on the Department's projected benefit costs for each benefit year. According to the Department's website, the first year's contribution breakdown will be published before July 1, 2019.

For purposes of the program, if more than 50% of an employer's workforce consists of self-employed individuals for whom the employer must use IRS Form 1099-MISC to report payments for services, the employer must include those self-employed individuals as employees.

Employers with an average of fewer than 25 employees are not required to pay the employer portion of family and medical leave. Employers must determine the average number of employees and members of its workforce by counting the number of employees (including full-time, part-time, seasonal, and temporary employees) on the payroll during each pay period of the previous calendar year and dividing by the number of pay periods. If an employer contracted with self-employed individuals for services during the pay periods and is required to report payments to them on IRS Form 1099-MISC, those individuals must be included in the count.

An employer that fail or refuse to make required contributions will be assessed 0.63% of its total annual payroll for each year that it failed to comply, as well as the total amount of benefits paid to covered individuals for whom it failed to make contributions.

Quarterly reporting is required

Beginning third quarter 2019, employers are required to file quarterly wage reports electronically through the state's MassTaxConnect system, reporting each employee's name, Social Security number and wages, and each employer's federal employer identification number and withholding tax account number. Based on the quarterly report filed by the employer, the system will calculate the total quarterly contribution amount owed. Contributions owed must be remitted within 30 days after the end of the calendar quarter.

If an employer made payments to individuals for services during the calendar quarter that are required to be reported on IRS Form 1099-MISC, the employer must also report the names and Social Security numbers of those individuals, and the amounts of payments made to them.

Waivers for private plans

An employer with a private medical and/or family leave program may apply annually to the Department for a one-year exemption from the public plan. Employers with private family and medical plans may apply for a one-year exemption from the public plan by September 20, 2019 (deadline extended from June 30, 2019). The application is available through the employer's MassTaxConnect account.

An employer may apply for exemptions from medical leave coverage, family leave coverage, or both. To be approved for an exemption, an employer's private plan must confer all of the same rights, protections and benefits provided to employees under the state's plan.

The Department's current guidance requires that exemptions for private plans must be approved in the quarter prior to the quarter in which they will go into effect. For 2019 only, however, the deadline to file for a private plan exemption that will be in effect for third quarter 2019 contributions for paid family and medical leave will be accepted if the application is filed by September 20, 2019. This will allow employers additional time to contemplate private plan options. Going forward, the Department will continue to accept applications on a rolling basis but applications must be approved in the quarter prior to the quarter in which they go into effect. (Notice, Massachusetts Department of Family and Medical Leave, May 2019.)

Paid family and medical leave program benefits

Beginning January 1, 2021 most workers in Massachusetts will be eligible for up to 12 weeks of paid family leave and up to 20 weeks of paid medical leave. On July 1, 2021, all benefits will be available.

The Department has posted guides for employers and workers to its website. See also the Department's frequently asked questions regarding the program. For more information on the paid family and medical leave program, see the Department's website.

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