We’ve had several questions from clients about the Massachusetts Paid Family and Medical Leave (PFML) law that I forwarded to the Department Family and Medical Leave. Others might have the same questions, so I thought I’d share the responses. I am re-typing the answers verbatim, so please excuse any grammatical errors or excessively long sentences.
Q: Should employers deduct employee contributions pre-tax or post-tax?
A: The treatment of PFML contributions for both state and federal purposes is governed by federal tax law. The Commonwealth has requested guidance from the Internal Revenue Service (IRS) on this question and others related to the tax implications of PFML contributions and benefits.
Until IRS guidance is issued, individuals and businesses are urged to consult with their own tax advisors on these questions.
Based on its own review of the federal rules and following consultation with the Massachusetts Department of Revenue, The Department of Family and Medical Leave anticipates that the IRS will conclude that employee contributions should be withheld from after tax wages.
Q: A client is a limited liability company, or LLC. The owners do not get a regular paycheck or a W2. Do we need to include them in PFML?
A: No, these individuals do not need to be included.
Q: A client has 2 or 3 employees who live and work remotely in New Jersey. Do they have to be included in PFML?
A: PFML follows the same eligibility criteria as the state unemployment insurance program. If an individual is subject to Massachusetts unemployment insurance, they will also be subject to PFML. In the situation described, the services performed by the employee are entirely localized in a different jurisdiction. As a result, they are NOT covered under PFML.
Q: I have been unable to get an answer to this question: what happens if an employer gets a private insured plan, then wants to switch back to the state plan? Two scenarios: before 1/1/21 or after 1/1/21?
A: If they switch back before 1/1/21, they will owe all back contributions plus interest and possible penalties. We have still not determined what to do after 1/1/21 but possible scenarios may be paying back contributions of up to 6 months or six month extended reporting on the private plan after termination.
This last question is the one that seems to be causing the most angst among employers considering a private plan, and rightly so. It represents a fairly significant unknown, and it’s clearly not been decided yet. The answer does, however, shine some light on the thought process that they’re going through. That, at least, is somewhat telling.
Several clients are feeling anxious about making exemption decisions quickly in advance of the October 1 payroll deduction start date. I agree that the payroll deductions are starting soon, but exemption approvals can be obtained up until December 20. If the math makes sense to get an exemption because you’d save 15 month of pre-funding and the insured rate for the private plan is lower than the state rate, it’s likely the math will work in the next month or two as well. Maybe at that point, we’ll have more insured options available and more answers to open questions.
Finally, a quick update on what we’re hearing from the insurance companies offering private plans:
- Guardian is offering quotes now. We’ve seen rates between .62% of payroll and 1.65% of payroll.
- Prudential is quoting now too for employers with 100 or more employees.
- Mutual of Omaha is quoting now, down to 25 lives, and every quote I’ve seen is at a rate of .75% of payroll.
- Our Reliance Standard rep is telling us that a product should be ready very soon.
- Our Hartford Life rep told us they are just about ready to offer an insured product to clients at the rate of .75% of payroll. They are still finalizing this, so it could change.
- I got an email from Unum today saying they are coming out with an insured product shortly.
If you’d like to chat about MA PFML, feel free to call us at (866)724-0008 or click the link below. We’d be happy to answer any questions you have.