Update on the Massachusetts Paid Family and Medical Leave Law

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

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

Key Definition Changes

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:

• Fully commission-based real estate brokers and salespeople and insurance agents and solicitors classified as W-2 employees.
• Students who perform work for a school, college or university.
• Employees of churches or organizations operated primarily for religious purposes.
• 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 U.S. under foreign work visas (such as H1-B, H2-B, O-1 and O-2 visas) are covered by MPFML and are subject to employee contributions if they otherwise qualify as a covered individual.

Updates to the Notice Requirement

The department delayed the written notice requirements to Sept. 30 but did not similarly delay the requirement to display its poster notifying employees of MPFML. The July 1 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 percent for medical leave contributions.

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

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 percent of the employees' wages.

Under the IRS's current interpretation of the 45S credit, if any state mandates paid leave of more than 50 percent 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 percent 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 Jan. 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.

Sean D. Callaghan is an attorney with Morgan Lewis in Boston. Douglas T. Schwarz and Mary B. Hevener are attorneys with Morgan Lewis in New York City. © Morgan Lewis. All rights reserved. Reposted with permission of Lexology.