Massachusetts’ New ‘Grand Bargain’ on Payroll Taxes, Minimum Wage, and Paid Leave

On June 28, 2018, Massachusetts Governor Charlie Baker signed into law a ‘grand bargain’ bill that will raise the minimum wage and implement a state program increasing mandatory paid leave for workers.

Paid Family and Medical Leave

A state program will be established to provide workers with twelve weeks of paid family leave and up to twenty weeks of paid medical leave, with no more than twenty-six weeks per year total. Employees must be restored to the same or equivalent positions they previously held on return from leave.

Employees on leave are entitled to up to 80% of their regular wages, limited to half of the state’s average weekly wage ($670), then 50% of wages up to an $850 per-week on gross benefits.

New Payroll Tax

The law creates a new payroll tax to be paid by employers, employees and self-employed in order to fund this program.

Which Employers Are Responsible to Pay the New Payroll Tax?

1. Employers with less than 25 employees do not have to pay the tax, though employees are responsible;

2. Employers with more than 25 employees must pay the tax, unless they provide a wage benefit greater than or equal to the state benefit;

3. Self-employed individuals who elect to receive benefits must pay the tax; and

4. Businesses whose workforce employs 50% or more independent contractors and must report payments for the independent contractors’ services on Form 1099-MISC, must pay the tax.

How Much Must Employers Pay?

The initial tax rate is .63% split between employers and employees. These proceeds go into a state fund. The treasurer and receiver for the new Family and Employment Security Trust Fund would set employer
contribution rates each year. Employers could not deduct more than 40% of the contributions from an
employee’s wages for medical leave. However, employers could deduct to up to 100% of the contributions from an employee’s wages for family leave.

The new law limits the wage amount that can be taxed to the same limit as Social Security. For 2018, this amount is $128,400, increased annually for inflation.

Additionally, employers will pay 60% of personal medical premiums and 0% of family premiums. Contributions to the program begin in July 2019, and benefits will go into effect in July 2021.

When Does the New Payroll Tax Begin?

The new payroll tax begins July 1, 2019, and the new Massachusetts Department of Family and Medical Leave would begin to pay benefits January 1, 2021.

Sales Tax

The new law keeps the existing sales tax rate at 6.25%. Additionally, it establishes a permanent annual two-day weekend sales tax holiday, set for mid-August.

Minimum Wage

The law raises the minimum wage from $11 to $15 per hour over a five-year period, starting with a $1 increase in 2019 and $0.75 increases per year from 2020 through 2023. Also, the new law increases the minimum wage of tipped workers from $3.75 to $6.75 per hour, with $.60 increases per year from 2019 through 2023.