LawFlash

Massachusetts Paid Family and Medical Leave: The Final Regulations and Related Tax Considerations

August 21, 2019

After a three-month delay in implementation to prepare for compliance, employer deductions under the Massachusetts Paid Family and Medical Leave begin October 1, 2019.

The Massachusetts Department of Family and Medical Leave (the Department) published its much-anticipated final regulations on June 18. Employers should be aware of some material changes in the final regulations although the framework of the draft regulations remains intact.

Key Definition Changes – Employee Exemptions, Children, and Intermittent Leave

Perhaps most notably, the final regulations adopted the definition of “employment” as used in the Massachusetts unemployment laws. As a result, 24 categories of employees are now exempt from the Massachusetts Paid Family and Medical Leave (“MPFML”). Of those 24 categories, among the most notable are: (1) 100% commission-based real estate brokers/salespeople and insurance agents/solicitors classified as W-2 employees; (2) students who perform work for a school, college, or university; (3) employees of churches or organizations operated primarily for religious purposes; and (4) student nurses working for a hospital or a nurses’ training school or interns working in a hospital, following a four-year course in a medical school.

The final regulations also modified the definitions of “child” and “intermittent leave.” As a result, under MPFML a covered individual may now take leave to care for an adult child. In addition, an employer may require that employees take intermittent leave in increments no smaller than a minimum amount designated by the employer (up to four consecutive hours).

Foreign Visa Employees

The Department recently announced that employees working in the United States under foreign work visas (e.g., H-1B, H-2B, O-1, O-2, etc.) are covered by MPFML, and are subject to employee contributions if they otherwise qualify as a “covered individual.”

Updates to the Notice Requirement

As we noted in our most recent LawFlash, Three-Month Delay in Massachusetts Paid Family and Medical Leave Program Notifications, Deductions and Contributions, the Department delayed the written notice requirements to September 30, 2019. But, the Department did not similarly delay the requirement to display its poster notifying employees of MPFML. The July 1, 2019, notice deadline remains in effect for the poster requirement, and employers should immediately display this poster with other employment and labor law notices.

Contributions

Employer deductions need not be uniform across the workforce. Employers may choose to deduct differing percentages from different groups of employees and covered individuals for medical leave contributions. However, employers may not deduct from wages or qualifying earnings more than 40% for medical leave contributions.

In a reversal of its earlier position, the Department recently announced that wage deductions apply to all wages beginning October 1, 2019, irrespective of when the employee performed the related services. Now, wages for services performed before October 1, 2019, but paid on or after October 1, 2019, are subject to withholdings. The Department previously communicated that only those wages for services performed on or after October 1, 2019 were subject to deductions.

Job Protection

While the final regulations maintain the generous protections afforded to covered individuals for job protection and anti-retaliation, the final regulations modified the job protection provision to make clear that an individual hired for a specific term or to work on a specific project is not entitled to the same rights to restoration if the employment term or project has concluded.

Penalties

Under the final regulations, the Department has given itself flexibility to waive or modify any penalty or assessment imposed as a result of an employer or covered business entity’s failure or refusal to remit contributions upon a showing of good cause.

Private Plan

Exemptions for private plans take effect no sooner than the quarter immediately following the date of their approval. Employers seeking a private plan exemption may only submit an application for approval once each quarter. This means that private plans that are denied an exemption must wait until the next quarter to reapply. Regarding record retention, approved private plans are required to retain, for a period of three years, all reports, information, and records related to the approved plan, including those related to all claims for benefits. Finally, approved private plans that do not renew their exemption must notify covered individuals and the Department no later than 30 calendar days before the termination of the private plan takes effect, and they must continue benefits for covered individuals under the same terms and conditions until the termination takes effect.

Employer Credit for Paid Family and Medical Leave

Internal Revenue Code section 45S provides a tax credit for employers who provide paid family and medical leave to their employees. Eligible employers may claim a credit based on wages paid to “qualifying employees” on federal family and medical leave where the benefits cover at least 50% of the employees’ wages. Under the Internal Revenue Service’s (IRS’s) current interpretation of the 45S credit, if any state mandates paid leave of more than 50% of employees’ wages, then the employer is not eligible for the credit, because the credit is only available if the employer is providing a rate of payment of at least 50% of wages that are not mandated. Given the level of state-mandated benefits under MPFML, Massachusetts employers will not be eligible for the 45S credit once benefit payments become mandatory beginning on January 1, 2020. However, there has been legislation proposed in Congress that not only would extend the section 45S credit for another year, but also would retroactively change the result mandated by the IRS Notice, to allow the credit to the extent that the employer’s leave program for qualified employees was more generous than the coverage level mandated by the state.

We will continue to monitor developments concerning MPFML and will provide further updates as more information becomes available. For a comprehensive overview of the program, see our prior LawFlashes, Paid Family and Medical Leave Coming to Massachusetts, issued on May 31, and Three-Month Delay in Massachusetts Paid Family and Medical Leave Program Notifications, Deductions and Contributions, issued on June 14.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Boston
Lisa H. Barton
David G. Bowman
Sean D. Callaghan
David A. McManus
Siobhan E. Mee
Peter J. Mee
Ryan R. Montgomery
Douglas T. Schwarz

New York
Mary B. “Handy” Hevener