The Massachusetts Department of Family and Medical Leave issued guidance for determining when to include independent contractors (referred to as 1099-MISC workers) and foreign visa workers in the employer's workforce count for reporting and determining whether it is responsible to pay and withholding the state's paid family and medical insurance (PFML) contributions.

As we reported previously, employers of 25 or more covered workers are required to pay a portion of the PFML contributions and to withhold a portion from covered employees' wages. (EY Payroll Newsflashes Vol. 20, #077, 6-19-2019 and #137, 9-9-2019; Vol. 19, #118, 7-12-2018.)

How to determine if independent contractors must be included in workforce count

The Department follows Massachusetts state unemployment insurance (SUI) law in determining whether individuals are working for the employer as an employee or independent contractor.

For 2019, Massachusetts 1099-MISC workers only count toward the total number of covered individuals for purposes of PFML contributions and reporting if for calendar year 2018 they make up more than 50% of the employer's total Massachusetts workforce (W-2 employees and 1099-MISC workers combined). Otherwise, an employer is not required to contribute or withholding the PFML for these workers or to report them for PFML purposes.

For the purposes of counting and reporting the employer's workforce, professional corporations (PCs), Limited Liability Companies (LLCs), Sole Member LLCs, partnerships, and corporations are not covered individuals and should not be included in the count, even if payments to them are reported on Form 1099-MISC. Those types of business entities should not have PFML withholdings or contributions by an employer.

For a 1099-MISC worker to be considered part of the workforce count, the 1099-MISC worker must:

• Perform services as an individual entity
• Live in Massachusetts
• Perform services in Massachusetts

The 1099-MISC worker must not:

• Be an independent contractor as defined by the Massachusetts UI statute, (M.G.L. c.151A), which is a guiding authority for the PFML program in many respects

The Massachusetts unemployment statute defines independent contractors as workers who meet this three-part test.

Workers who meet the criteria for being included in the workforce count and who have been determined to not be an independent contractor under the three-part test must be counted as a member of the employer's Massachusetts workforce.

If the total workforce number is less than 25, the employer is not responsible for the employer portion of the medical leave contributions and is not required to withhold PFML contributions from workers' wages.

Counting visa program workers as covered individuals

• Foreign worker program visas. H-2A visa holders (seasonal agricultural workers) are exempt from making PFML contributions and are not considered covered individuals. Therefore, employers are not required to withhold or remit PFML contributions from H-2A visa holders.
• International student and foreign exchange program visas. International student and foreign exchange program visa holders (e.g. F-1, OPT, J-1, and J-2) are considered covered individuals (assuming they meet the workforce criteria above) and employers are required to withhold and remit PFML contributions on their behalf when these employees are permitted to work in the United States.
• Other temporary foreign worker visa programs. All other temporary foreign worker visa programs (e.g., H-1B, H-2B, O-1, O-2, etc.) are considered covered individuals (assuming they meet the workforce criteria above) and employers are required to withhold and remit PFML contributions on their behalf.

Program details

Emergency legislation was enacted and final regulations were released that delayed the effective date for collecting and remitting PFML contributions by three months. As a result, employers will begin withholding and paying PFML contributions on October 1, 2019 at an initial rate of 0.75% (up from the previous 0.63% that would have started July 1, 2019) of each employee's wages, up to the 2019 Social Security wage base of $132,900.

• Benefits. Effective January 1, 2021, most workers in Massachusetts will be eligible to get 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.
• Employer and employee contributions. Employers were to begin remitting paid family and medical leave (PFML) employee and employer contributions for the fourth quarter 2019 (October 1 to December 31, 2019) through MassTaxConnect by January 31, 2020.

Based on the initial rate of 0.75%, the allocation of PFML contribution rates beginning October 1, 2019 is 0.62% for medical leave and 0.13% for family leave.

Employers with 25 or more employees may withhold up to 40% of the medical leave portion of the contribution from employees' wages. Based on the medical leave rate of 0.62%, employers must calculate their contributions at a minimum of 0.372% and may withhold up to 0.248% of employees' wages up to the Social Security wage limit) and up to 100% of required contributions for family leave.

The Department provides a contribution calculator that may help employers to determine the breakdown of their contribution responsibilities.

• Employee notice and workplace poster. Employers were required to provide a written notice to employees and covered independent contractors of the PFML benefits by September 30, 2019. A poster must also be displayed in the workplace. The notice must include information about the PFML benefits, contribution rates, and other provisions as outlined in M.G.L. c. 175M sec. 4.

The notice, which may be provided electronically, must include the opportunity for an employee or covered self-employed individual to acknowledge receipt or decline to acknowledge receipt of the information. The employer can receive these acknowledgments in paper form or electronically. Forms must be retained according to employer internal document retention policy. Do not send the forms to the Department.

Failure to provide the required notifications may result in $50 per individual charge for the first violation and $300 per individual for subsequent violations.

• Private plans. Employers with private family and medical plans may apply for a one-year exemption from the public plan by December 20, 2019. The application is available through the employer's MassTaxConnect account.

For more information, see the Department's website or call +1 617 466 3950.

Resources

• Guides for employers and workers.

• Frequently asked questions for employers.
• Videos that explain the PFML program are available here.

For more information on the paid family and medical leave program, see the Department's website.

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