By Catherine Reuben, David Wilson September 24, 2019
On Tuesday, September 17th, over 100 people attended HRW’s Roundtable about the Massachusetts Paid Family and Medical Leave law. Our two guest speakers were:
→ William Alpine, Director of the Massachusetts Department of Family and Medical Leave (DFML), provided a clear and practical summary of what employers need to do now, and answered numerous questions from the audience.
→ Darren Ambler, Principal, Managing Consultant at OneDigital Health and Benefits, provided an update on private plan options for employers.
In this HRW Client Alert, we share the key takeaways from our roundtable:
What Employers Need to Do Now
Treatment of 1099-MISC Workers
Director Alpine acknowledged that there has been a lot of confusion around the treatment of individuals who are paid through a 1099-MISC. The confusion arises because, per the law, if more than 50% of the workers in a business are self-employed persons paid through a 1099-MISC, then such business is a “covered business entity” and all those workers are eligible for PFML benefits. In a recent notification, however, the DFML clarified that if an individual is truly an independent contractor as that term is defined in the unemployment statute (and bear in mind that the definition is narrow) then such individual is not a covered worker under the PFML law. The DMFL further confirmed that, for the purposes of counting the size of an employer’s workforce, professional corporations (PCs), Limited Liability Companies (LLCs), Sole Member LLCs, partnerships, and corporations are not individuals and should not be included in the count, even if the employer makes payments to them by 1099-MISC.
Take for example a small architecture firm with only one employee, an architect. The firm may utilize various independent contractors to perform services that have nothing at all to do with architecture, such as plumbing, cleaning, and legal advice. Director Alpine confirmed that, if the firm’s regular plumber, office cleaner, and lawyer are all truly independent contractors, then the firm would not be a “covered business entity” under the PFML law. The firm would not need to send PFML notices to those independent contractors, and those workers would not count for purposes of the 25-employee threshold.
Note, however, that the operative word is “truly.” Employers need to consult with their employment counsel regarding whether they are properly classifying individuals that provide services for them as contractors. If the individuals are not truly contractors under the law, then they would count for PFML purposes.
Prior to this clarification, some employers may have sent PFML notices to persons who are true independent contractors. The DFML will be providing an amended notice form that employers can give to those workers. This notice will clarify that, as a contractor, such worker is not eligible for PFML benefits through the company that engages them, but that they can opt in, on their own, as a self-employed person.
“Rule of thumb: Whatever you do for unemployment, do for PFML”
Director Alpine pointed out that the PFML statute adopts definitions from the unemployment law for many purposes. So, for example, if an employer is paying unemployment insurance in Massachusetts for a worker the employer should make PFML contributions for that worker. Conversely, if a worker is not subject to Massachusetts unemployment law, then they would not be eligible for PFML benefits.
Whether or not a worker is subject to Massachusetts unemployment law can be a nuanced question, one that employers may have not previously given much thought. Employers should consult with counsel regarding workers who do not perform services exclusively in Massachusetts.
“It’s a good time to be reviewing your policies and procedures”
One of the attendees asked what would happen if an employee did not give their employer proper notice of their need for leave. Director Alpine pointed out that, under the regulations, employers can establish and enforce policies and procedures with respect to communicating a need for time off. So, for example, an employer might have a uniformly-enforced policy stating that, if an employee fails to return from leave and does not call in advance to request an extension, that employee may be deemed to have resigned.
Note, however, that there is currently no official redress for the employer at the agency level. The current protocol is to have the DFML determine whether a leave is proper under the law, not under employer policies. Whether or not the employer can discipline the employee for their failure to give notice is a separate question, and would depend on the employer’s policies, treatment of similarly situated individuals and other factors.
Another attendee asked whether an employer could stop paying for health insurance if the employee did not timely pay their share of the premiums. Director Alpine noted that this is another area where company policy (consistent with the COBRA and ERISA laws) could dictate.
Obviously, an employer cannot have a policy that takes away PFML rights. And an employer may not subject a person taking paid family or medical leave under the PFML law to harsher policies or enforce the policies in an inconsistent manner. But if an employer wants to require its employees to abide by certain rules, and is prepared to enforce those rules consistently, now is a good time to get those rules in place.
Private Plans
One important decision for employers is whether to opt out of the PFML program by offering a private plan, either a self-funded plan or a plan through a private insurance carrier. Darren Ambler referenced nine major insurance carriers that have expressed their commitment to offer a private plan option, as well as another that is likely to announce a private option soon. Mr. Ambler spoke about the pros and cons of the private plan option. Depending on the size and demographics of your workplace, private plans may offer more convenience and some cost savings to employers. The downside is that, unlike with the PFML program, the size of the premium may vary according to the employer’s usage.
Mr. Ambler reviewed the procedural requirements for opting out, including the exemption questionnaire that must be submitted electronically (noting that a “no” answer to most questions will disqualify the plan), the fact that an actual written plan or Declaration of Insurance must be submitted, and bonding requirements for self-funded plans. An employer can have a private plan for medical leave, family leave, or both, but cannot have different plans for different groups of workers.
The deadline to file for an exemption from the first quarter contributions is December 20, 2019. Mr. Ambler reminded the audience that private plans must provide rights, protections, and benefits that are equal to or more generous than the state program, and that the plans must be approved by the DFML.
One unanswered question is whether an employer can collect contributions now to fund a private plan to be provided in the future. Director Alpine commented that the answer to that question turns on federal law (ERISA), and employers need to consult their own lawyers. Mr. Ambler commented that the Department of Labor (which enforces ERISA) would not likely permit an employer to collect premiums for an insured plan prior to implementation of the plan. A self-funded plan might have a better argument due to the need to build a reserve for claims, but might still face a challenge under ERISA.
Warning: Some employers are attracted to the private plan option because it allows them to avoid paying contributions between November 1, 2019 and January 1, 2021. Be aware that if an employer is approved for a private plan prior to January 1, 2021, but then fails to maintain or renew it prior to that date, the employer will be assessed back contributions and may also be subject to penalties and interest.
Tax Treatment
The DFML has reached out to the IRS for guidance regarding whether PFML contributions should come out of pre-tax or post-tax income, and whether the benefits will be taxable. Unfortunately, the IRS has not yet provided a definitive answer. The DFML anticipates that the answer will be that benefits should come out of post-tax income, as is the case under the New York Paid Family Leave Benefit Law.
More Guidance to Come
There are still many questions regarding the PFML law that remain unanswered. The DFML anticipates issuing more guidance for employers in coming months. Reasonable minds can disagree, for example, on how specifically the anti-retaliation provisions should be interpreted and enforced. Another complex question is the extent to which an employee should be allowed to use accrued sick time hours to supplement PFML benefits. As of now, the DFML’s position is that if an employee uses sick time, they cannot also get PFML benefits; however, the DFML continues to discuss the topic, and they may reconsider that position. Another close question is whether an employee who is taking leave under the PFML program and FMLA at the same time can be forced to use up their vacation time, something permissible under the FMLA but impermissible under the PFML law. Director Alpine is currently of the view that a person using PFML cannot be forced to use up their vacation or sick time, even if they are concurrently taking FMLA leave, but agreed that there might be a preemption argument to be made. Another issue that remains unsettled is how reimbursements will be handled. In short, there is still time and room for the DFML to reconsider and clarify its position on some of the more nuanced and hotly contested topics.
For Questions/More Information
Please contact any of the following HRW lawyers:
• Cathy Reuben: creuben@hrwlawyers.com / 617-348-4316
• Dave Wilson: dwilson@hrwlawyers.com / 617-348-4314
• Pete Moser: pmoser@hrwlawyers.com / 617-348-4323
• Mike Birch: mbirch@hrwlawyers.com / 617-348-4359
• Charlotte Petilla: cpetilla@hrwlawyers.com / 617-348-4353
• Ari Kristan: akristan@hrwlawyers.com / 617-348-4365
• Mark Macchi: mmacchi@hrwlawyers.com / 617-348-4331
• Liz Monnin-Browder: emonnin-browder@hrwlawyers.com / 617-348-4349
