A New Employment Tax?! WHAT?!
Because payroll and payroll taxes aren’t complicated enough, Massachusetts has decided to implement a new payroll tax withholding called PFML. *Insert questionable cheering* While this new program has the potential to be great for employees, it’s posing some fun “little” nuances for employers and payroll companies!
Hahaha DON’T WORRY - Massachusetts will make changes before we know it! And that they did. Below is the most update information.
What is PFML?
A Paid Family and Medical Leave program in Massachusetts
Covered individuals can apply for paid leave benefits beginning January 1st, 2021
Up to 20 weeks of paid medical leave in a calendar year for a serious health condition that doesn't allow them to work.
Up to 12 weeks of paid family leave in a calendar year relating to the birth, adoption, or foster care placement of a child.
Maximum of 26 weeks of paid leave for the calendar year.
Covered Individuals can apply for paid family leave to care for a family member starting July 1, 2021.
Up to 12 weeks of paid family leave to care for a family member with a serious health condition
Benefit is capped at $850/week and is determined by the individuals weekly earnings.
This law will also provide job protection. An employee who has taken paid family or medical leave must be restored to the employee’s previous position or to an equal position, with the same status, pay, employment benefits, length-of-service credit, and seniority as of the date of leave.
How does this impact your business?
Every employer is responsible to withhold and pay the new payroll tax withholding on a quarterly basis. The actual business expense is determined by the total number of covered individuals. If you have 24 or fewer then do NOT have to cover any of the new deduction but can choose to pay some or all of the deduction. If you have 25 or more covered individuals you are required to pay 60% of the medical leave contribution.
What are covered individuals you ask?
Covered individuals are W-2 employees and 1099 contractors who are individuals (residing in and working in Massachusetts) only if they make up more than 50% of your total workforce. To determine what your workforce consists of you’ll need an average of your Massachusetts W-2 employees and a count of the individual 1099 contractors that reside and work in Massachusetts, and that you would be required to issue a 1099 (this does not include businesses that you 1099 only individuals). Massachusetts has made it nearly impossible to have to include these 1099 contractors, but it’s important that you verify your totals.
Let’s Calculate your Average Workforce
Count all employees on the payroll during each pay period for the last 18 months (all employees, including full-time, part-time, seasonal, and unionized). Take the total and divide it by the total number of pay periods. This is your average W-2 employee count.
Now take the total number of 1099 Individuals which reside in MA that you contracted with during each pay period. Divide that number by the number of pay periods you counted. This gives you your average 1099 contractors.
Now add both numbers together! This is your total average workforce.
Let’s Decide who your covered individuals are!
Take your number of 1099s from above and divide by your total average workforce and multiple by 100. Is this number 50% or higher? If so, you must include your individual 1099 contractors in your covered individuals. If not, your covered individuals are only your W-2 employees.
What are you responsible to pay?
The total contribution is 0.62% of gross wages (up to $132,900/year in wages), which they have broken into 2 components:
0.62% Medical Leave
0.13% Family Leave
From the calculation above - if you have 25 or more covered individuals, you are responsible for 60% of the .62% medical leave and your employees are responsible for the remaining 40% of the medical leave plus 100% of the .13% Family leave. You can choose to pay more or all on behalf of the covered individuals.
If you have 24 or fewer covered individuals, you are not responsible for any portion of this contribution. However you are responsible to withhold 40% of the .62% and 100% of the .13% and remit this payment to the state of Massachusetts. If you so wish you can choose to pay a portion (or all) of the employees portion if you would like to as a benefit to your employees. (Yes, this means the 60% you would be responsible for with 25+ covered individuals “doesn’t exist”)
You may ask “How will I file and pay this?” - Good question, the state hasn’t really decided yet! Don’t worry, we’ll let you know when we know! What we do know is that the first “file and pay” will be due by January 30th, 2020 and will be through MassTaxConnect. It is likely that your payroll processing company will file this, but be aware that if you have to include subcontractors in the filing, you will need to file an amended return as the payroll company does now know these numbers.
Check out this handy calculator the state has provided for us! We don’t say this too often, but the state has provided something pretty helpful!
If 1099 subcontractors are included in your covered individual count, you must either withhold the percentages from the payment to them, or cover the contribution on their behalf.
Important Dates to Remember
September 30, 2019 - you must provide written notice to all existing staff about the program and capture their acknowledgment. The PFML Notice to Employees can be found here.
September 30, 2019 - you must post the MA Paid FMLA Poster next to your existing Labor Laws poster, we recommend you do this ASAP so you don’t forget!
October 1, 2019 - ensure contributions are being calculated in payroll and appropriately reported.
January 30, 2020 - first filing and payment is due. You can begin filing and paying beginning January 1st, 2020
January 1, 2021 - most benefits available
July 1, 2021 - most benefits available