UPDATE! Washington State’s New Leave Requirement – Get Ready

Washington's new Paid Family & Medical Leave requires employers to collect premiums starting 1/1/19.  After attending Employment Security Department webinars, updates have been made to our blog.  See these updates in red text.  More employers will need to pay premiums into the state program than you may have thought.

There are already a number of leave laws that businesses in Washington State need to comply with. As of January 1, 2019, there will be yet another. This one, Paid Family & Medical Leave (PFML), is an insurance program that will be run by the state’s Employment Security Department (ESD). It will be funded by premiums collected via payroll deduction. For employers with more than 50 employees (per average calendar quarter), the premium is shared between employers and employees. Even though benefits won’t be available until 2020, premium assessments need to begin with the first payroll of 2019. Are your clients ready to comply? For the purpose of this blog, I am going to concentrate on what employers need to deal with in the very near future. Future blogs will focus on other intricacies of the program.

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Which Employers Need to Comply
Just about all Washington-based employers, and any other employer with at least one employee working in Washington State, must comply with this new insurance program. The only exceptions:

• Federal government – their employees won’t be eligible, nor assessed premiums
• Federally-recognized Tribes – although they can opt in
• Self-employed – although they can opt in (this includes sole proprietors, independent contractors, partners and joint ventures)

Note that a company that provides employees on a temporary basis to its customers is considered the employer for purposes of this new law. 

Employers whose headquarters are out-of-state can file an application for a premium waiver for any employee of theirs working in Washington State. But, only if the employee is physically based outside of the state, is employed in Washington State on a limited or temporary work schedule and is not expected to be employed in Washington for 820 or more hours in a qualifying period (4 calendar quarters). The application has to be signed by both the employer and the employee. If the employee ends up working 820 or more hours in a qualifying period, then the waiver expires and the employee and employer are responsible to pay back premiums.

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Employer Requirements
As of the first paycheck on or after 1/1/2019, employers will need to deduct the PFML insurance premium from every Washington employee’s paycheck. This applies to all employees, including part-time, seasonal, and temporary workers. Owners and officers of the employer must also pay PFML premiums if they receive wages.

​If the employee’s first paycheck of the new year includes pay applicable for 2018, those dollars will still need to be included in the premium calculation since the payroll payment is being made in 2019 (this is the same way as Unemployment Premium reporting).

The first quarterly payment of these premiums (and hours reporting) will be due to the ESD by the end of April, 2019. Again, any hours paid in 2019 for work done in 2018 will need to be included in this first quarterly reporting. For ease, salaried exempt employees will be reported at 40 hours per week, regardless of actual hours worked. Employment records must be retained for a minimum of six years. 

Of important note, employers will not be allowed to charge premiums for a particular pay period during any other pay period. That means that if an employer is not set up, and does not deduct employee premiums timely, the employer, not the employee, will be on the hook for paying the employee portion of the premiums.

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PFML Premiums
There are two parts to this program – Family Leave and Medical Leave. There are also potentially two payors into the program – employees and employers (those with 50+ employees during average calendar quarters). When remitted to ESD, these premiums will be held in separate “buckets.” For 2019, the premium is 0.4% of wages.  There is a cap on wages charged the premium and (thankfully) it mirrors the Social Security wage cap ($132,900 in 2019).

Ready for some math? 37% of the premium will be earmarked for Family Leave while the other 63% will be collected for Medical Leave. The employee will pay 100% of the Family Leave premium and 45% of the Medical Leave premium. Employers with 50+ employees during average calendar quarters will pay the other 55% of the Medical Leave premium. Employers with fewer than 50 employees during average calendar quarters are not required to pay the employer portion; those premiums remain uncollected and are not charged to the employee.  

Let’s break this down with an example. 
Assume an employee has earned $2500 gross pay, and the PFML premium is 0.4% (2019 rate).

• First, calculate the total premium                          $2500 x .004 = $10.00
• Second, calculate the employee premium
  • Employee share of Family Leave               $10.00 x .3333 = $3.33
  • Employee share of Medical Leave             $10.00 x .3000 = $3.00
  • Total Employee Premium                             $6.33

• Third, calculate the employer premium              $10.00 x .3667 = $3.67

                                                                                    These factors were taken directly from the ESD’s website

An employer, regardless of size, can elect to pay all or some of the employee’s portion of these PFML premiums. If an employer with fewer than 50 employees during average calendar quarters elects to pay the employer premiums, they would be eligible to apply for small business assistance grants (which are available to employers with fewer than 150 employees during average calendar quarters). These grants can help small businesses cover some costs of hiring temporary workers when an employee uses PFML. 

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​Employer Size
Every year, on September 30th, ESD will calculate each employer’s average number of employees per average calendar quarter, using the prior 4 calendar quarters of reported data. Since there is no data collected for 2019, ESD will use the actual number of employees reported by the employer for 2019, Q1. For the employer’s 2020 employee count, the ESD will average the number of employees reported over the first two quarters of 2019.

​Important:  Employee count is a true headcount, with every employee included on the quarterly report equaling one employee (including part-time, temporary, seasonal, etc). Even if an employee reported on the quarterly report worked just one hour during the quarter, they are counted as one toward your quarterly headcount.  This will greatly affect employee counts for employers who have turnover - since the leaving employee and their replacement may both have worked at least one hour during the same quarter:  each will count as one toward the quarterly headcount.  

If the employer is reporting 50 or more employees in 2019, Q1, the employer will need to pay the employer premium during all of 2019, regardless of whether their employee quarterly headcount shrinks during the year.   

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​Penalties & Damages
Willful failure to file the required reports is subject to penalties, starting with the second occurrence. 

• $75       2nd occurrence
• $150     3rd occurrence
• $250     4th occurrence and each thereafter

In addition, the employer will be charged a penalty equal to the entire balance of premiums not remitted plus interest. This is in addition to also having to pay the actual balance and interest. 

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​The Bottom Line
Make sure your clients are ready for this new program. Here’s a list of what they should be focusing on now:

1. Prepare to withhold premiums as of the first payroll in 2019
2. Determine if employer will pay any portion of the employee premium
3. If the employer expects to be < 50 employees during all of 2019's 1st quarter, determine if will pay the employer portion of the premium
4. Have a process set up to tabulate wages and hours data for reporting that will start in April of 2019
5. Out of state employers may want to file for waivers if applicable
6. Watch for more guidance from the ESD regarding how to remit the first payment in April

I’ll delve into two other areas of the rules, the actual employee benefits as well as the option of a voluntary program, in future blogs! 

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