When Governor Charlie Baker signed Paid Family & Medical Leave into law last week – based upon a program that I helped write that was included in a bill that I filed in the House – he introduced a program that will improve the life of every working family in Massachusetts. But just as important, it will provide valuable assistance to small and medium-sized business as well.
We all know why a worker would welcome the opportunity to spend 12 weeks with a newborn or newly adopted child, without worrying about how they will pay the rent. Our imaginations don’t have to stray too far to guess why a worker confined to a hospital recovering from a heart attack, stroke or effects of surgery would welcome 20 weeks of paid leave. Or why a worker would treasure the opportunity to have the time to console a hospitalized child, spouse or aging parent without the stress of bills going unpaid.
But this program has also been well received by small business, at least once owners and managers give it a chance. A 2015 study of 223 Rhode Island small and medium-sized businesses found that 61 percent were favorable or very favorable to the program two years after it was introduced. A 2017 study of 1,210 small and mid-sized businesses in New Jerseyfound that 63 percent were favorable or very favorable to it. Professor Jane Waldfogel’s 2017 study was consistent with a California survey that found that the vast majority of businesses reported the program had a minimal negative impact on their business.
The purpose of this blog is to demystify the program and explain why, and how, public policy can be used to create winners without leaving anyone behind. I am proud and humbled to have done my part to bring this program to the 3.1 million workers of the Commonwealth. Creating this program took me to the White House several times, as President Obama took a keen interest in our work. I worked with Treasurer Deb Goldberg, former Treasurer Steve Grossman, former Finance Director Jay Gonzalez and from the Federal Government, I worked with former Labor Secretary Tom Perez, Deputy Secretary Chris Lu, White House Aide Valery Jarrett. I am grateful for contributions from many legislators from other states (thank you Sen. Gayle Goldin of RI). I worked with professors from UMass-Boston and Northeastern, and lawyers from Greater Boston Legal Service. I learned from Raise Up Massachusetts, AIM, the Coalition for Social Justice, Family Values at Work and the Center for Law and Social Policy. We have the most progressive and positive program in the country, and here’s what it’s all about.
I am a Massachusetts worker, how will this program affect me?
Paid Family and Medical Leave (“PFML”) will replace a portion of a worker’s income if that worker experiences the birth or adoption of a child, or seeks to care for a family member who is confined to a hospital, under constant medical care, or has returned from military service with certain covered conditions. A worker must have been employed long enough to qualify for unemployment insurance, but the program is portable, meaning that if a worker leaves one employer for another job, the worker does not have to re-qualify. The worker has to show proof of the relationship to the sick or injured person, and some evidence about the condition of the ill or injured person.
This program includes a seven-day waiting period. It will not apply to ear infections, typical colds, and flu, or broken arms or legs. This is reserved for times of joy (childbirth or adoption) and times of great stress.
The program provides 12 weeks of paid leave for every Massachusetts worker, no matter the size of the employer, except those who work for the federal or a municipal government. It provides 12 weeks for a worker to take leave to be with a newborn or newly adopted or foster child, or to care for a seriously ill or injured family member. It provides up to 20 weeks for a worker’s own serious illness or injury. It provides up to 26 weeks for the family member of a military serviceperson to care for that person who has been defending our liberties for our country. The worker can take a maximum of 26 weeks in one year.
Just as important as the wage replacement, the worker’s job will be protected during the period of leave. This protection was previously available to workers of companies with 50 employees or more, but now it is available to every worker.
How much wage replacement will I receive?
Workers will be paid a percentage of their income, with lower paid workers receiving a higher percentage of their wages replaced. This is because well-paid workers may have had a better opportunity to save for a rainy day than a minimum wage worker. To determine your benefit, take the average weekly wage in Massachusetts (“AWW”), and divide by two. The AWW is available online and is currently about $1,200. Workers will receive 80 percent of their salary, up to one-half of the state’s average weekly wage. If the worker earns more than one-half of the AWW, the remainder will be paid at 50 percent.
Let’s say the AWW goes up to $1,300 by January 1, 2021, when PFML goes into effect. That means anyone who earns $650 per week or less will receive 80 percent of their wages during the covered period. If you earn more than $650 per week you will receive 80 percent of $650, which is $520, plus 50 percent of your remaining weekly salary. The program has a cap of $850 per week in benefits. This cap is also tied to the AWW, so it is likely to raise or fall based on average income levels over time. The program will be designed with an online portal that will easily calculate this benefit for you.
OK, I get it, (sort of), but how much will this cost me?
Benefits are paid from a fund created through payroll deduction. The initial premium will be .63 percent of wages. Workers will pay half and the employers will pay half. The premium will not be charged after the worker has reached the social security limit, which is currently $128,000. To give you some idea of how that compares to withholding you are currently paying, Social Security takes 6.2 percent and Medicare takes 1.45 percent. That $40,000 per year worker will see a weekly payroll deduction of $2.42. A person working 40 hours at minimum wage will pay $1.70 per week.
How does that affect small business?
If you run a small business, this program will allow you to retain your important workers by compensating the worker out on leave, as if they are off your books. You can then use the payroll that would have been paid to the worker on leave to compensate someone else to do the work. This way, you have not been forced to replace the worker on leave because it’s the only way to get the work done, and the worker has not been forced to resign after sick time has been exhausted.
Let’s say you own a sub shop and one of your most experienced workers suffers a serious illness requiring hospitalization, like a heart attack. Currently, you might want to pay the person on leave, to relieve the financial stress he or she may face while convalescing. Most small business owners will either pay the worker if possible – even if it’s not strict company policy – or worry the worker will never be able to return. Very few small business owners I spoke with are so callous that if a person needs two months to recover from a serious illness they tell them they must lay them off and are unconcerned about the ability of the worker to put food on the table. Very few small business owners can afford to provide Temporary Disability Insurance (“TDI”) to their workers to cover instances such as this. In fact, very few small business owners can afford to provide TDI coverage even for themselves.
Small business owners do not want to lose well-trained, experienced, loyal employees if they experience a serious illness or injury. Not only is replacing a worker costly and the results of a new employee uncertain, today’s low unemployment rate makes it unlikely the worker will be replaced any time soon. By taking the worker on leave off the payroll, the business can concentrate on making up the short-term loss of the worker, rather than the effects of losing the worker altogether.
Because we heard from a number of owners of the smallest Massachusetts businesses about the stress of even this modest premium on their bottom line, the program will not charge businesses with 25 employees or less the employer half of the premium. That means the small bakeries, gas stations, coffee shops and businesses like this will have this program available to them, without any investment at all.
It is true that programs in California, New Jersey, and Rhode Island are all employee funded, but the reason is that family leave in those states was created by adding a benefit to an already existing public TDI plan. Administrators of those states’ plans see the benefit to the employer and may believe that the employer should contribute to the operation of the program as well, but the pre-existing structure does not allow it. The two most recent states to enact the program, Washington and Massachusetts, are both funded by contributions from both the employer and employee.
But I already have this benefit – or as a business owner I already offer this benefit to my employees – so what’s in it for me?
If an employer already offers TDI it has two options. If it can save money by joining our PFML plan it can do so. It is likely that carriers will design a supplemental insurance plan so that if an employer already offers a benefit of more than 12 weeks for family leave or 20 weeks for medical leave, the supplemental insurance will top off the benefit as part of a larger coverage package. If the employer can offer the same or better benefits than our new PFML plan either by paying the benefits itself or through private insurance than it can opt-out of our plan. The employer will still have to pay a small opt-out fee to cover the cost of oversight, but if the employer can take care of its employees on its own, it can do so and the premiums will not be withheld from either the employer or the employee.
I’m sold. So when will this plan begin?
The plan will begin to pay benefits on January 1, 2021. At that time, parents of a newborn or newly adopted or foster child can use the plan, as can individuals claiming time to convalesce from their own serious illness or injury. Also on the first day of that year, family members of service member can take time to care for that service member. On July 1, 2021, the plan will begin to pay benefits for workers to take care of a seriously ill or injured family member.
You mentioned minimum wage, when is that changing?
Well, it’s a separate issue from PFML, but it was adopted in the same bill. Massachusetts will raise its minimum wage to $15 an hour over the next five years. It will also raise the wage earned by tipped workers. At the same time, the time-and-a-half paid to retail employees who work Sundays and some holidays will be eliminated. Here’s a chart that shows the timing: