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December 2, 2019
2019-2118

Philadelphia becomes first city to mandate portable paid leave for domestic workers a model for gig workers?

On November 26, 2019, Philadelphia Mayor Jim Kenney officially signed into law a groundbreaking ordinance establishing a bill of rights for domestic workers that includes, in addition to basic labor protections, a legal right to a portable paid time off system.

Prior to the May 1, 2020 effective date of the ordinance, the Domestic Workers Standards and Implementations Tax Force will be established for the crafting of regulations and to make arrangements for the development of the portable leave system.

Portable paid leave

Except for work performed on a casual basis (a term to be defined in upcoming regulations), and consistent with the Philadelphia paid leave ordinance, covered domestic workers will accrue one hour of paid leave for every 40 hours of work up to a maximum of 40 hours per year.

The maximum annual accrual of 40 hours applies even if the domestic worker provides more than 40 hours per week of service to multiple employers.

Except for casual work, and any exemptions created as part of the establishment of the portable benefits system, each employer of the domestic worker is required to pay its pro-rata share of paid leave funds into the portable leave system based on the hours worked for the employer.

The funds contributed by the domestic worker's employers into the fund will become the compensation available to the worker for earned paid leave.

All contributions made by employers will be maintained in a centralized paid leave time account designated for each employer and domestic worker. Once domestic workers meet the required accrual hours for paid leave time, their rights are vested. Hence, domestic workers are guaranteed the right to the paid leave accrued and maintained in their designated portable account. Domestic workers retain their rights and have access to their portable account regardless of changes that may occur in their relationship to employers that made contributions to their account.

Employment taxes owed on paid leave benefits

Given that paid leave benefits credited to domestic workers' accounts represent taxable income for federal purposes (and for most states and localities), it is concerning that the ordinance does not address how payroll taxes (e.g., federal, state and local income tax) will be withheld, how employment taxes (e.g., Social Security/Medicare and federal/state unemployment insurance) will be paid or how reporting requirements (e.g., Forms W-2/1099) will be met. It is hoped that these matters will be carefully considered during the regulatory process.

Covered workers

Currently, the ordinance covers only domestic workers including hourly and salaried employees, independent contractors, full-time and part-time individuals and temporary individuals who: (1) work for one or more hiring entities; and (2) work in the residence for the purposes of caring for a child, serving as a companion or caretaker for a sick convalescing, elderly or a person with a disability; housekeeping or house cleaning; cooking; providing food or butler service; parking cars; cleaning laundry; gardening; personal organizing, or for any other domestic service purpose except for:

  • A family member of the service user
  • An individual primarily engaged in house sitting, pet sitting, or dog walking
  • An individual working at a business operated primarily out of the residence, such as a home day-care business
  • An individual whose primary work involves household repair or maintenance, such as a roofer, plumber, mason, painter or other similar contractor
  • A home health care worker while they are paid through public funds, such as a home health care worker while paid through Medicaid or Medicare
  • An individual less than 18 years of age

Ernst & Young insights

Philadelphia's adoption of a portable benefit program is part of a nationwide effort led by the National Domestic Workers Alliance (NDWA). In addition to its local efforts, the NDWA is backing federal legislation, the Domestic Workers Bill of Rights Act, introduced by Sen. Kamala Harris (D-CA) and Rep. Pramila Jayapal (D-WA) this year. While portable benefits are not currently part of the bill before Congress, NDWA's deputy director, Mariana Viturro, commented that the Philadelphia ordinance "can be a precedent for other workers in similar arrangements" (namely nontraditional work arrangements where workers provide services for multiple hiring entities and are not eligible for traditional employee benefits). (The Philadelphia Inquirer, November 6, 2019.)

Already some states, such as California (Tax alert 2019-1625), have taken steps to extend employee protections such as minimum wage and unemployment insurance to gig workers. The next hurdle for the labor rights movement is how to extend benefits that are tied to full-time employment, like paid time off, to workers who are employed part-time by multiple hiring entities. As advocates for gig workers continue to crusade for wage and benefit equality, there is widespread speculation that Philadelphia's landmark portable benefits program will be a model emulated in cities and states across the US.

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Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Tax Services - Employment Tax Advisory Services
   • Kenneth Hausser (kenneth.hausser@ey.com)
   • Debera Salam (debera.salam@ey.com)
   • Kristie Lowery (kristie.lowery@ey.com)

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