Paid Family and Medical Leave
The Commonwealth is rolling out a PFML program that will require employers and companies that use independent contractors for a certain percentage of their workforce to withhold certain amounts from payments to those employees or contractors, and submit the withholdings to the state for use under the PFML plan. Under this plan, covered individuals (defined below) will be eligible for weekly benefits when taking family or medical leave – a benefit previously unavailable to certain individuals, and especially independent contractors.
Withholdings were originally set to begin July 1, 2019, but the administration agreed to delay the start of withholdings until October 1, 2019, due partly to lack of knowledge about the program and how wide reaching it will be. It is not known as of now if there will be any additional extensions past October 1, 2019, so it is best to quickly prepare so you can be ready to meet the requirements as outlined below.
The state posted a guide for all employers at https://www.mass.gov/guides/prepare-for-paid-family-and-medical-leave and it provides concrete steps to be taken, along with links to approved flyers and posters that must be placed at company headquarters where employees or contractors can see it.
Step 1. Hang up an approved Workplace Poster
Step 2. Determine your Massachusetts workforce.
Any W-2 employees should be counted
Any 1099-MISC contractors that are performing services in the trade or business that the company is engaged in or regularly perform services for the company.
Add up the number of W-2 employees paid in each pay period in 2018 and divide by the number of pay periods. This is the W-2 2018 average
Add up the number of 1099-MISC contractors paid for services in each pay period and divide by the number of pay periods. This is the 1099-MISC 2018 average.
Step 3. Calculate the number of covered individuals
W-2 employees are always considered “covered individuals”
For 1099-MISC individuals, if the 1099 average is equal or less than the W-2 average, then only W-2 employees are considered covered individuals. But, if the 1099 average is greater than the W-2 average, then both W-2 and 1099 contractors are considered “covered individuals”. In other words, if 1099 contractors make up less than 50% of the company’s workforce, then they are not counted at all in determining if the company has to pay the employer portion.
In general, a “covered individual” is someone paid wages by a MA employer, lives in MA and paid for contract services by a MA entity as a contractor if the company employs contractors as more than 50% of its workforce, or a self employed individual who chooses to opt in to the program.
Step 4. Determine Financial Responsibility
If the number of covered individuals from Step 3 is less than 25, the company is not responsible for the employer portion of the medical leave contributions. Regardless of whether the company is responsible for paying the employer portion, every company is responsible for collecting the “employee” portion and remitting the same to the state – this is true whether the person is an employee or a contractor who resides and performs services in MA.
The state has provided a calculator to help determine what needs to be paid and how much.
Step 5. Notify affected individuals
Each company must, on or before September 30, 2019, provide written notice to current covered individuals. The link provided in Step 1 leads to the approved samples provided by the state in multiple languages. It must be provided in a way that allows acknowledgement of receipt. Sending a certified letter that can be tracked is likely the safest way to be in compliance. Even if the employee/contractor does not acknowledge receipt, as long as the company can prove it was provided and receipt could have been acknowledged, the company is in compliance.
If less than 50% of the workforce includes 1099 contractors, notice does not have to be provided to the contractors.
Step 6. Begin withholdings by October 1
Withholdings must begin for payments made as of October 1, 2019, and these withholdings must be submitted to the state on a quarterly basis, similar to taxes and other withholdings. For this step, it's best to touch base with your accountant if they haven't already contacted you about this new withholding requirement.
Step 7. Submit quarterly filings beginning January 31, 2020
Quarterly filings must begin January 31, 2020, and be submitted through Mass Tax Connect
Certain workers are excluded from the withholding requirements. The complete list is in MGL c. 151A Section 6,