Payroll tax to fund family and medical leave will be higher, begin later than planned

Elise Amendola/Associated Press
Lawmakers in the Massachusetts Statehouse and Governor Charlie Baker last week imposed a three-month delay, until Oct. 1, on the start of payroll tax contributions to fund the paid family and medical leave program.

The payroll tax intended to fund paid family and medical leave benefits will kick in later than first expected and at a higher rate than initially authorized by the Legislature.

Lawmakers and Governor Charlie Baker last week imposed a three-month delay, until Oct. 1, on the start of payroll tax contributions to fund the estimated $800 million paid family and medical leave program launched so workers can more easily take care of themselves and their families without facing financial crises.

The fledgling Department of Family and Medical Leave planned to begin collecting a 0.63 percent payroll tax from employers July 1 to fund the program, but business and advocacy groups raised concerns about their ability to prepare for the new tax.


Despite a proposal from Baker’s administration to raise the tax rate from 0.63 percent to 0.75 percent in the case of a three-month delay, the supplemental budget the Legislature used to impose the delay did not alter the tax rate. But on Friday, the DFML sent a notice to employers announcing that the tax rate had been increased by 19 percent — from 0.63 percent to 0.75 percent.

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Of the total amount that will be deducted through the payroll tax, 82.5 percent is meant to fund medical leave benefits and the remaining 17.5 percent will be directed to family leave benefits. Workers can be responsible for contributing the entirety of the family leave funding, but can only be responsible to pay up to 40 percent of the medical leave funding with the rest coming from employers.

State officials and lawmakers who worked on the delay bill said the higher tax rate is meant to allow the state to collect the same amount of money it anticipates needing for the first year of benefits — about $1.4 billion — but in three months less time.

“That is the figure that the department feels it needs to accomplish the same trust fund balance, so it’s basically reaching that trust fund balance in five quarters rather than six quarters,” Senate Ways and Means Chairman Michael Rodrigues said Monday. “And they have the authority to adjust that contribution level as they see fit.”

The Legislature, in a supplemental budget bill last October, granted the new department the authority to “increase the initial aggregate rate above 0.63 per cent of the employee’s wages if necessary to ensure the required trust balance.” The department used that authority to increase the tax rate.


“We were aware, and I think the whole business community was aware, that the contributions were going to go from 0.63 [percent] to 0.75 [percent] and then we were assured that that did not have to be written in statute, that the department has the authority to do that,” Rodrigues said when asked what mechanism allowed the rate to increase without specific legislative direction.

The new paid family and medical leave law, part of the June 2018 “grand bargain” law, calls for up to 12 weeks of job-protected paid leave to care for a seriously ill or injured family member, to care for a new child, or to meet family needs arising from a family member’s active duty military service. It also authorizes up to 20 weeks of job-protected paid leave to recover from a worker’s own serious illness or injury, or to care for a seriously ill or injured service member.

Benefits will become available on Jan. 1, 2021 for workers seeking time off to bond with a new child, take care of a sick or injured service member, or to tend to a serious personal health condition. On July 1, 2021, benefits will be made available for workers to care for a family member with a serious health condition.