NY Finalizes Regulations and Publishes Taxation Guidance on NY’s Paid Family Leave Law

In July, the New York (NY) Workers’ Compensation Board (WCB) published final regulations on NY’s Paid Family Leave (PFL) law — proposed regulations were published in February 2017 and were revised earlier this summer. For some quick background, NY’s PFL law takes effect Jan. 1, 2018, and provides eligible employees with paid, job-protected leave of absence to bond with a new child, care for a family member with a serious health condition or assist with family obligations when a family member is called to active military service. Employees can take up to eight weeks in 2018, but that number grows to 12 weeks by 2021. Similarly, PFL benefits – funded through employee payroll deductions – grow over time. In 2018, employees will receive 50 percent, up to a statutory maximum, of the employee’s average weekly wage, and that number grows to 67 percent by 2021.

The final regulations mostly adopt the proposed/revised regulations, with some changes discussed below relating to the definition of “full time employee”, intermittent leave, NY PFL’s interaction with FMLA, waiver of employee’s contributions and employer notice obligations.

Both full time and part time employees are eligible for PFL benefits, although full time employees become eligible for benefits at 26 consecutive weeks of work — while part timers become eligible on the 175th day of work in a 52-consecutive-week period. Final regulations define “full time” as an employee working 20 or more hours per week and “part time” as an employee working fewer than 20 hours per week.

On intermittent leave, both the proposed and final regulations provide that employees may take intermittent PFL in daily or weekly increments. The final regulations clarify the procedure for computing the rate for weekly leave and the average daily rate for daily leave. Specifically, weekly benefits are calculated using the employee’s average weekly wage for the eight-week period immediately preceding the first day of the PFL leave. With intermittent leave, though, an employer may exclude the final partial week when calculating the employee’s average weekly wage. Also, when an employee takes intermittent leave in daily increments, the maximum period of PFL is determined with reference to the employee’s average weekly wage divided by the average number of days worked per week. So for example, if an employee works two days per week in 2018, they will receive the equivalent of two days per week – at 50 percent of their wages, in 2018 – for eight weeks — up to a maximum of 24 days in any consecutive 52-week period.

The final regulations also address NY PFL’s interaction with federal FMLA leave. Specifically, while NY PFL and FMLA run concurrently, the final regulations require employers to notify eligible employees of this fact and provide them with the appropriate FMLA notice and certification forms. Providing those notices, along with other PFL-required notices, allows the employer to count leave against the employee’s PFL entitlement, even if the employee fails to actually apply for PFL benefits. Lastly, the final regulations confirm that an FMLA-protected leave for an employee’s own serious health condition may not be counted against his or her NY PFL entitlement. That’s especially important for employers, since employees cannot take NY PFL leave for their own serious health conditions.

Regarding waivers, there are certain situations where an employer must offer a waiver of PFL benefits to employees, thus relieving the employee from making PFL payroll-deduction contributions. One such situation is where an employee will not be eligible for PFL benefits because they are not scheduled to be employed for at least 26 weeks (or will not work 175 days in a 52-week period). Waivers should be automatically revoked within eight weeks of any change in the employee’s schedule that requires them to continue working past those 26 week or 175 day thresholds. In that case, the employee must make contributions, including any retroactive amounts due from the date of hire.

On notice requirements, the final regulations require employers to post a notice regarding NY PFL in common workplaces, such as a breakroom or cafeteria. NY is still apparently working on a model notice for that purpose. In addition, the final regulations require employers to update employee handbooks with written guidance for employees on their NY PFL rights and obligations, including information on how an employee can file a PFL claim, either with the carrier – if the employer has a fully insured disability plan – or with the employer — if the employer self-insures their disability claims. Cautious employers should also provide direct written guidance to employees relating to PFL benefits and must do so if they do not maintain an employee handbook).

Then, in August, the New York State Department of Taxation and Finance (DOTF) published N-17-12, which addresses NY PFL taxation issues. Specifically, the notice relates to the tax treatment of deductions from employees’ wages used to pay for PFL premiums and the tax treatment of PFL benefits received by employees out on PFL-protected leave.

According to the notice, premiums are to be deducted from employees on an after-tax basis. In addition, PFL benefits paid to employees will be taxable, non-wage income that must be included in federal and state gross income. Taxes will not automatically be withheld from benefits although employees may request voluntary tax withholding. Employers should report employee contributions on Form W-2 using Box 14 (state disability insurance taxes withheld). Finally, PFL benefits should be reported by the NY State Insurance Fund on IRS Form 1099-G and by all other payers – which would include either private disability insurance carriers or self-insured employers – on IRS Form 1099-MISC.

Many employers had questions on the tax treatment of PFL premiums and benefits; so the notice has been much anticipated and is welcome guidance. Employers should work with payroll providers and with outside counsel on specific implementation procedures on taxation and tax withholding issues relating to the PFL law.

PFL Final Regulations »
N-17-12 »