A big challenge for employers is complying with payroll tax requirements when they have employees who work outside of the employer’s state lines. If you’re headquartered in Detroit, what payroll laws do you have to follow when your employees work in Toledo? Washington D.C.? Maine?
When employees live or work outside of your business’ home state, your business faces a complex patchwork of payroll withholding and reporting requirement burdens.
And, you’re on the hook for additional compliance with more and more states adopting paid sick leave programs, paid family and medical leave (PFML) programs, and universal leave (UL) programs.
Want more great news? The programs aren’t universal. Each state’s program is unique.
What’s the difference between paid sick leave programs, PFML, and UL?
Under paid sick leave programs, eligible employees accrue sick leave at a rate based on the number of hours they work. For example, you earn one hour of sick leave per 40 hours you work. Then, you can use that earned sick leave time to address health needs for yourself or family members.
PFML and UL programs are new developments in some states. Essentially, they’re insurance programs funded by premiums paid by employees, employers, or a combination of both.
PFML programs allow employees to take paid leave for family and medical reasons, which could include spending time with a new child or caring for a family member with a serious health condition. It doesn’t replace paid sick leave programs and has a more expansive list of permitted uses compared to paid sick leave programs.
UL programs are even more expansive than PFML.
For each program, states define which employees are eligible, which employers are required to provide paid sick leave, PFML or UL, and how employees earn paid leave time, and more.
Some states – like Maine – may have PFML or UL programs in addition to paid sick leave.
If you employ people in states with any of these programs, you should pay attention to the following:
1. Employer requirements
How does each state set employer requirements? Do you have to be located in the state? Or, do you have to have employees whose primary place of work is in the state?
Do you have to employ a certain number of employees within a specified timeframe? The state you’re headquartered in may not have a paid sick leave or PFML requirements, but you could have employees who work in other states that do.
2. Employee eligibility
Which types of employees qualify for these program benefits? Full-time? Part-time? Seasonal? Independent contractors?
3. Notifications
As an employer, how are you required to communicate these benefits to employees? Post posters in the workplace? Update your employee handbook? Share documentation on the programs?
4. Tracking
How do employers track employee accruals, rollover, and usage? Does the state require employers to share accrual updates? If so, how often? Are you required to keep any payroll records?
Look into your payroll system’s functionality. Can it withhold additional payments for certain employees? Can it track the accrual and usage of earned sick time? What reporting do you need to get from it?
5. Payment
When employees use their earned sick time, what do you pay them? Their normal wage or a percentage of it?
What do you pay them when they take their paid leave for family or medical reasons?
6. Withholding/contributions
Which states have PFML or UL programs that are funded by employers? Employees? A combination? What do you need to do to ensure you’re contributing to the state’s program?
7. Employee rights
When can an employee take paid leave? Do they receive payment for any unused time they earned in the event they leave or are terminated? Can they file complaints against their employer?
8. Employer rights
Can you set any requirements or expectations for your employees? I.e. ask them to find a replacement, take sick time or leave in certain increments, or provide notice before they take leave.
Below is a list of states that adopted PFML or paid sick leave programs with a brief overview of their individual laws. It’s a small taste of what you should know as an employer with employees working in those states.
If you think any of these laws affect you and your employees, we recommend looking into the law further.
We also suggest you contact an expert to help you understand your compliance requirement and avoid any penalties.
States with PFML or other leave programs
In 2022, employees will be able to take up to 12 weeks of partially paid leave during a 12-month period and an additional two weeks if they experience a serious, pregnancy-related health condition.
They can take leave for their own health or for a covered family member which includes, a spouse, child, parent, parent-in-law, grandparent, grandchild, sibling, or someone they have a similar relationship with.
Businesses with one or more employees are required to participate in Connecticut’s PFML program.
To be eligible, employees must work for the employer for at least 12 weeks and earn at least $2,325 during a defined base period. And, they can receive program benefits for continuous periods of leave or nonconsecutive hours.
Employee payroll taxes fund this program. Each employee will contribute a tax up to 0.5% beginning Jan. 1, 2021.
Employers don’t have to contribute to the program, but they’re responsible for withholding the tax and remitting it to Connecticut’s Family and Medical Leave Insurance Trust Fund.
Learn more about the law and view frequently asked questions.
In Maine, eligible employees can take up to 10 weeks of leave in any two-year period. Employees are eligible for the program if they’ve been employed by the same employer for 12 consecutive months and if the employer has 15 or more workers in one location.
Employees of state agencies and city, town, or municipal agencies with 25 or more workers are also able to take family medical leave.
Reasons for taking leave are similar to other state programs – if you have a new child, suffer a serious health condition, or need to care for a family member with a serious health condition.
Employees are eligible for the program if they’re employed, have earnings from employment, and have made contributions to the program for 12 weeks.
If you take leave, you receive 2/3 of your average weekly wage or 100% of Maine’s average weekly wage, whichever is lower, for six weeks in a 12-month period.
Employees contribute to the program based on a sliding scale of their individual wages.
Starting in January 2021, nearly all workers in Massachusetts will get up to 12 weeks of paid family leave and 20 weeks of paid medical leave.
All Massachusetts’ W-2 employees are eligible. So are independent contractors, if they make up more than 50% of an employer’s workforce.
Employees, employers, and self-employed individuals fund the paid leave programs.
As the employer, you’re required to collect and send quarterly contributions to the Department of Family and Medical Leave. Contributions are split between you and your employees. Employees can pay up to 100% of the family leave contribution and up to 40% of the medical leave contribution.
If you employ more than 25 employees, you must pay the remaining 60% of the medical leave contribution. If you employ fewer than 25 employees, you don’t have to pay the remaining 60%, but you can choose to pay a portion of your employees’ shares.
The contributions you collect and remit must total 0.75% of your employees’ gross wages.
Start preparing now! Payroll deductions begin on Oct. 1, 2019. and employers must remit contributions starting Jan. 31, 2020.
In Nevada, family and medical leave is unpaid. But, employees’ jobs are protected if they take leave.
Employees are given 26 weeks of leave during a 12-month period to care for a covered service member with a serious injury or illness. Or, they can take up to 12 weeks of leave in a 12-month period to care for a new child, family member, themselves, or a relative who’s a military member on covered active duty.
You must abide by this program if you’re a private employer with 50 or more employees, a public agency, or a public or private school.
Employees are eligible for job-protected leave if they work for any of these employers for at least 12 months and have a minimum of 1,250 hours of service to that employer in this timeframe.
However, if you work in a location where that employer has fewer than 50 employees within 75 miles, you’re not eligible for this program.
All employers in Washington – even those located out of state with employees who work in Washington – must participate in the paid leave program. Self-employed individuals and federally recognized tribes can opt-in.
Employees are eligible to receive paid leave if they work 820 hours or more in a qualifying period and experience a qualifying event. They can take up to 12 weeks (18 in special circumstances) for medical or family leave.
Employees can take medical leave if they experience a serious health condition that makes them unable to work. Family leave is allowed if a family member experiences a severe health condition, if the employee undergoes a birth or placement of a child under 18, or if certain activities occur related to a family member’s military duty.
Benefits are available to employees on Jan. 1, 2020.
Both employers and employees fund the program – 63% from employers and 37% from employees.
Contributions add up to 0.4% of a worker’s wage and happen via payroll withholding. Employers can choose to cover all or some of their employees’ premiums.
For employers with fewer than 50 employees, you don’t have to pay the 63% employer portion. However, you still have to remit employee premiums.
If your business performs services in the District of Columbia and you pay unemployment insurance (UI) taxes for employees, you need to make paid family leave contributions.
This includes nonprofit and household employers. If you’re self-employed and opt-in to the program, this includes you.
Quarterly employer payroll taxes – 0.62% of covered employees’ total wages – fund the program. Contributions are based on the wages paid in the previous quarter and total gross wages.
How do you know which employees are covered? If you pay UI tax on them in a quarter, they’re considered a covered employee.
However, you can argue against this logic if you can prove the employee worked outside of the District for at least 50% of the year and that their work wasn’t temporary or incidental.
As a covered employee, you can take eight weeks of leave to bond with a new child, six weeks to care for family members, and two weeks to care for yourself. Benefits begin July 2020.
States with paid sick leave programs
Almost all private employers are required to provide paid sick time to employees, except for small businesses with annual gross revenues less than $500,000 and aren’t engaged in interstate commerce.
Part-time, temporary, and full-time employees can accrue and use paid sick time.
If you have more than 15 employees, you must allow them to accrue and use up to 40 hours of paid sick time each year. If you have less than 15 employees, they can accrue and use up to 24 hours of paid sick time each year. They earn a minimum of one hour of paid sick time for every 30 hours they work.
Check out the FAQs on Arizona’s earned paid sick time law.
Public and private employers are required to provide paid sick leave to their employees. Most employees who work 30 days or more in a year are eligible, no matter if they’re full-time, part-time, or temporary.
Employees earn a minimum of one hour of paid leave for every 30 hours worked. At a minimum, employers must provide 24 hours of paid sick leave per year for full-time employees.
Employees can carry over their sick leave into the next year, but employers can cap the total amount accrued to 48 hours.
Keep in mind, some cities and counties in California have more expansive sick leave laws that provide a greater benefit to employees. Make sure you’re aware of any local laws in California too.
Maine recently passed a paid leave law that goes into effect on Jan. 1, 2021. Under the new law, employers with more than 10 employees for more than 120 days must provide paid leave. Seasonal employers are excluded.
Employees earn one hour of paid leave for every 40 hours they work, with a cap of 40 hours in a single year. Employees accrue time immediately, but employers can require them to wait to use the time until after 120 days of employment.
Maryland’s sick and safe leave law applies to all public and private companies.
Employers with 15 or more employees must provide paid leave. Employers with 14 or fewer employees can provide leave on an unpaid basis.
Some employees – real estate professionals, agricultural workers, independent contractors, and others – aren’t entitled to paid leave.
Employees earn one hour for every 30 hours worked, up to 40 hours in a single year. Employees are also capped at accruing 64 hours of earned sick and safe leave at any time.
Employers are also required to provide employees with a written statement of employees’ available earned leave time.
In Massachusetts, employers with more than 11 employees must allow employees to accrue up to 40 hours of paid sick time per calendar year – including part-time, full-time, seasonal, per diem, and temporary workers.
If employers have less than 11 employees, the earned sick time can be unpaid. Employees earn one hour of sick time for every 30 hours they work.
When an employer is calculating its number of employees, it has to count all employees – including those that work outside if Massachusetts who have been on the payroll for 20 or more weeks.
The federal government, cities, and towns don’t have to comply with this law, but they can opt-in.
Currently, businesses with more than 50 employees must provide one hour of paid medical leave to nonexempt employees for every 35 hours they work. The accrual maxes out at 40 hours.
There are a number of employee exceptions including, exempt employees, employees whose primary work location isn’t in Michigan, variable-hour employees, and more.
If you choose to allow your employees to accrue their paid sick leave, they can roll over at least 40 hours into the next benefit year. When determining your number of employees, the law requires you to count all employees – part-time and full-time.
Nevada requires all private employers with 50 or more employees to provide earned paid leave to their employees. If you’re a new employer, you don’t have to comply with this law for the first two years of operation.
The minimal accrual rate is .01923 hours of paid leave per work hour. As an employer, you can choose to front-load the time or let employees accrue it.
Employers can limit employees’ usage and carryover to 40 hours. Temporary, seasonal, and on-call employees aren’t entitled to paid leave.
All private employers with employees in New Jersey, including out-of-state employers, must provide paid sick leave. Public employers are excluded.
You’re also required to record and retain documents that show the hours employees work and the paid sick time they’ve taken for a five-year period.
Employees can earn one hour of paid leave for every 30 hours worked, with a maximum of 40 hours. Essentially, if you have employees that routinely work in New Jersey and your base is in New Jersey, the employee is entitled to sick leave.
There are only a few employee exceptions, including independent contractors, and public employees who receive sick leave in other states.
Private employers and covered public employers with 10 or more employees in the state must provide up to 40 hours of paid sick time per year. If you have less than 10 employees, you must provide unpaid sick time.
You must count all types of employees – full-time, part-time, seasonal – when determining your number of employees.
You’ll also have to pay attention to the daily average number of employees during a 20 workweek period. If your average is more than 10 employees, you have to provide unpaid sick time.
Employees accrue one hour of sick time for every 30 hours worked or 1 1/3 hours for every 40 hours worked. As the employer, you can limit the accrual to 40 hours and you’re only required to let employees use 40 hours per year. You can also cap total accrual balances to 80 hours.
If you employ 18 or more people in Rhode Island, you must provide one hour of paid leave for every 35 hours they work. If you have fewer than 18 employees, you must provide earned sick leave, but it can be unpaid.
However, all employers can’t retaliate against any employees that choose to use their earned sick leave. Employees of all types – part-time, full-time, seasonal, or other – can earn paid leave if they work in Rhode Island more than any other state – regardless of the employer’s location.
Government employees and certain per diem nurses are exempt from this law. Employees can earn up to 32 hours of leave in 2019 and 40 hours of leave in 2020 and future years.
All employers that do business or operate in Vermont must provide earned sick time to eligible employees. Employees whose primary place of work is in Vermont accrue one hour for every 52 hours they work.
Employees can use up to 40 hours of their earned sick time in 2019 and later years. Some employees aren’t eligible for earned sick time including, federal government employees, seasonal employees, and individuals younger than 18 years old.
If you choose to provide employees with a lump sum at the start of each year, you don’t have to allow employees to carry over their unused time. If you grant time as they accrue it, you do have to allow them to carry over up to 40 hours.
As of Jan. 1, 2018, all employers in Washington have to provide paid sick leave to their employees. All workers who meet the definition of employee in the state’s Minimum Wage Act are eligible to receive paid sick leave.
Ineligible employees include independent contractors, certain agricultural employees, and those who do volunteer work for certain types of nonprofit organizations.
Employees accrue at least one hour of paid sick leave for every 40 hours they work. There’s no cap on how many hours of paid sick leave they accrue. But, employers don’t have to permit employees to roll over more than 40 hours into the following year.
As an employer, you can choose to frontload paid sick leave time or allow employees to accrue it as they work. If you choose to frontload, you still have to allow employees to carry over their unused time into the next year.
If you have 100 or more employees, you must provide one hour of paid sick leave for every 37 hours they work. You can cap the annual accrual at seven days.
If you employ 25 to 99 employees, you must provide one hour of paid sick leave for every 43 hours worked. You can cap their accrual at five days.
If you have fewer than 24 employees, you must provide one hour of paid sick leave for every 87 hours worked and cap the annual accrual at three days.
You must allow employees to carry over any unused sick leave into the next year. If you have any employees who are exempt from overtime payments, they won’t accrue any leave for any hours they work beyond 40 hours in a workweek.
Remember, the details above are a brief overview of each state’s PFML, UL, or paid sick leave programs. Many have additional details regarding employer and employee eligibility, when employees can use their leave, and what the employer should do to administer the programs.
As the employer, it’s your responsibility to follow and comply with the state laws that apply to you or your employees. You need to know if you’re required to make contributions to certain state programs or collect payment from employee wages and how often.
If you have workers in any of the states with paid leave programs, it’s worthwhile to review the laws with your lawyer to determine your next steps. Work with your payroll professionals to make the appropriate changes – whether that’s withholding, accruals, or reporting.
Connect with a tax professional to understand your tax liability and ensure you’re complying with each state’s tax requirements. And, take note of the states where your employees work. Are those states poised to adopt a new paid leave program? If so, how can you prepare your company for any additional requirements?
Our state and local tax professionals are well-versed in state tax laws and requirements across the U.S. Have questions about your tax liability and if any of these programs affect you? We can help. Let’s talk!