Paid Family & Medical Leave Act: What does finance/payroll need to do?
By now most of you are aware of the new withholding and reporting requirements for Washington’s Paid Family & Medical Leave (PFML) insurance program. Starting in 2020, Washington State will be only the fifth state in the nation to offer paid family and medical leave benefits to its workers. This new mandatory employee insurance program will allow workers to take up to 12 weeks as needed if they are struck by a serious illness or injury or need to care for an ill or ailing relative or their newborn child.
This is a statewide insurance program that will be funded by premiums paid by the employee — and in many cases, the employer — and the State Employment Security Department (ESD) is the agency charged with administering it.
Premium assessments for this new insurance coverage begins on January 1, 2019, and MRSC has been receiving several questions about program implementation and reporting. Some of these questions, such as what type of information will need to be reported and how will the premium be calculated, have already been answered on our Family and Medical Leave page. Subsequent to the release of this information, I attended a training session by ESD that clarified some questions but raised others.
I hope to answer some of the questions MRSC has received regarding PFML in this blog post; However, this is a new program and there will be more questions than answers for several more months. Below are answers to some of the questions that I have received.
What should my finance/payroll department do first?
The PFML is a mandatory insurance program, similar to that of Medicare coverage, where the employee and employer both pay into an insurance system that will provide benefits at a future point in time, under specific, qualifying circumstances. However, there is one significant exception here: Small employers are not required to contribute a portion of the premium (See next question below: How many employees do we have?)
From a fiscal management perspective this mandatory deduction from the employee’s pay must be explained to the employee. In addition, your jurisdiction’s payroll software will need to be programmed to accommodate this new employee deduction and, if applicable, the employer’s contribution. Accurate withholding of the employee’s premium is critical. If you have not already contacted your software provider or payroll processing vendor to notify them of this significant change, you will need to do so before you process your first January 2019 payroll.
How many employees do we have?
It will be important to determine whether your jurisdiction employs 50 or more employees or less than 50. Those local government employers with 50 or more employees must report both the employee and employer portions of the PFML premium, while the less-than-50 employee jurisdictions are only required to collect and remit the employee portion of the PFML (see the August 6th blog post above).
So who should we include in the count? The new PFML program uses a methodology that counts all paid employees, including elected officials. It will be important to report all employees, whether seasonal, temporary, part-time, or full-time, as the benefits of PFML are portable between jobs, so employees’ access to PFML will depend on accurate reporting by all employers. Because of the critical nature of these reports, there are penalties written into the statute for employers who neglect to report accurately.
Similar to the lookback period used by the Internal Revenue Service (IRS) for calculating tax liability reporting, the PFML will average the number of employees reported by an employer over the last four completed calendar quarters. Annually this number will be used to determine whether the employer is a 50-or-greater employer or a less-than-50 employer. The annual headcount will also be used to determine eligibility for small business assistance grants. The count will look like this:
|Calendar||Number of Employees|
|Quarter 1||20 employees|
|Quarter 2||40 employees|
|Quarter 3||40 employees|
|Quarter 4||140 employees|
|Average: 60 employees|
For the purpose of determining the size of the employer and premium assessment for calendar years 2019 and 2020, the ESD has modified the headcount calculation for these first two years of the PFML through the rulemaking process. The first calendar quarter (January 1—March 31) will be the employee average number for assessment and reporting purposes for all four calendar quarters in 2019.
On September 30, 2019, the average number of employees reported over the quarters provided in 2019 will determine the employer size for calendar year 2020. (WAC 192-510-045 is set for adoption on December 3, 2018 as part of Phase 2 rulemaking). Starting in calendar year 2021 and thereafter, the head count will take place on September 30 and use the numbers reported for the previous four quarters to develop the average employee number for purposes of assessment and reporting for the subsequent reporting period.
These rules and others are being drafted, submitted for public comment, and adopted via the ESD rulemaking process. To learn more about Phase 2 rulemaking for the reporting requirements as well as future rules for the PFML go to ESD Paid Leave Rulemaking.
What hours and on whom do we report?
This question has been asked frequently of late through the Ask MRSC web portal. While the PFML insurance premium is calculated on gross wages paid, you must additionally report the number of hours worked as it forms a component of the calculation of benefits received by the employee when they become eligible. As part of its Phase 2 rulemaking, the ESD is adopting an additional chapter under Title 192, Chapter 192-540 WAC and section 040 will speak to the reporting of hours under PFML. It reads:
Hourly Employees: Hourly employees need to be reported at the “total number of hours worked” including the number of hours an employee is on paid leave such as vacation, sick or paid time off (PTO). (Note: do not report leave hours when it’s for a cash out). Additionally, overtime hours should be reported as the actual hours worked, without regard to the amount of wages or compensation paid; on-call and standby hours should be reported according to the number of hours that the employee is required to comply with employer requirements.
Salaried Employees: report 40 hours for each week the salaried employee worked, including paid vacation, sick or PTO leave.
Commissioned or piecework employees: report the actual number of hours worked by employees who are paid based upon piecework (local government does not compensate based upon commissions). If there are no reliable time keeping records, you must report the employee at 40 hours worked for each week that they performed their duties.
What about elected officials?
The number one question by local government has been, “What about elected officials?” Sample questions include:
- How should they be reported?
- Are they considered salaried employees?
- If the elected official receives $50.00 a month or less is it considered a nominal stipend?
According to the response we have received from the Paid Family & Medical Leave Customer Care Team, RCW 50A.04.010 (23)(b) applies in this instance and regardless of the number of hours worked per week, a salaried employee would be recorded as 40 hours. Under the current guidance provided by ESD elected officials are considered salaried employees and therefore subject to reporting at 40 hours each week.
For those of you with elected officials who do not receive compensation or are paid a nominal amount, we would recommend that you submit your reporting questions to the ESD at email@example.com or call them direct at 833-717-2273.
Update 1/2/19: ESD has provided the following response regarding part-time salaried employees, including elected officials: “When a salaried employee is not a full-time salaried employee, we are asking that the employer make a good faith estimate on the hours actually worked. If their hours are tracked please report the actual number of hours worked.”
As we all prepare for the new calendar year 2019, the most important considerations our local governments face are the requirements of this new mandatory insurance program, Paid Family & Medical Leave. The first report will be due April 30, which will report wages and hours of all employees of local government for the reporting period of January 1—March 31, 2019. This report form will be separate from the unemployment report, which is due at the same time.
Local governments will be able to access the PFML report via the SecureAccess.wa.gov website. The report format is still in the development phase, but it is important to understand that all employers will be required to use this website to access and manage their accounts and file the required forms. If you have not set up your administrative accounts with SecureAccess Washington, be sure to do so early enough to avoid any last-minute access errors or connection issues. ESD is set to release additional information about formatting payroll data for the PFML report this December or early 2019.
Most recently the ESD released the Employer Toolkit for Washington’s PFML, which provides additional guidance to help with your implementation of this new insurance program.
New state overtime rules being considered by L&I
On another subject area related to personnel issues, it has come to our attention that the state Department of Labor & Industries (L&I) is also going through a rulemaking process to change overtime rules. Here is a brief release and links to providing comments and feedback.
L&I is seeking comments on a proposed rule to increase the salary threshold for overtime pay. Current threshold is $455 per week or $23,660 per year. A new overtime rule increase of 2—2.5 times the state minimum wage would increase this annual threshold to $56,160 or $70,200. Input is needed by December 14 and can be submitted to L&I via a feedback session, online, or by email (EAPRules@Lni.wa.gov). Feedback from the public will help L&I develop the official draft rules, which will be released when the formal rulemaking process begins in early 2019.
If you have questions about paid family leave or other local government issues, please use our Ask MRSC form or call us at (206) 625-1300 or (800) 933-6772. If you have comments about this blog post or other topics you would like us to write about please email me, and don't forget to submit your comments to L&I regarding overtime rules by December 14.
MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.