State leaders agree to a three-month delay for paid-leave taxes

Governor Charlie Baker (Matthew J. Lee/Globe staff/File)Matthew J. Lee/Globe Staff

Massachusetts employers won’t face Paid Leave Armageddon in a few weeks after all.

State officials on Tuesday granted anxious business leaders their wish by agreeing to a three-month delay before assessing companies fees for a new paid family and medical leave program. These new taxes were supposed to kick in on July 1. Now, they’ll begin in October.

The news came via a brief joint statement issued Tuesday night from Beacon Hill’s three leaders: Governor Charlie Baker, Senate President Karen Spilka, and House Speaker Robert DeLeo. They did not provide much additional detail, other than to note that the postponement should give businesses adequate time to implement the program, and that some minor changes will be made to its design. (The Legislature still needs to vote to adopt the delay.)

With potential payroll disasters looming, business groups had ramped up their Beacon Hill lobbying on this issue in recent weeks. Employers continue to have many unanswered questions, including whether they are eligible to opt out of the state program because they already offer similar benefits, and whether to pass some of the cost of the fees to employees. Chaos seemed imminent.

Associated Industries of Massachusetts said member companies sent more than 2,500 messages to Baker and legislative leaders last month indicating that they don’t have enough time and information to make these decisions.

Meanwhile, the Raise Up Massachusetts coalition of labor and community groups eventually sided with the business leaders in their quest for a three-month delay; paid leave’s biggest supporters want to ensure a smooth rollout.

The benefits start to kick in on Jan. 1, 2021. To ensure there’s enough money, business groups expect that lawmakers will increase the tax to 0.75 percent of wages of each employee, from 0.63 percent, because of the delayed start. Those rates aren’t expected to last forever: Every fall beginning in 2021, the administration will decide whether they should change, to keep the paid-leave fund solvent.

Lawmakers passed this new paid leave program last year as part of a broader legislative package on wages and benefits known as the “Grand Bargain,” because they resulted from a compromise proposal between Raise Up and several major business groups after protracted negotiations.

The law is intended to exempt companies that already offer more generous leave benefits than what will be provided through the new state program — 12 weeks of paid parental leave, and 20 weeks of paid medical leave.

But that has proven easier to say than to do.

The laundry list of criteria surprised many employers, particularly those who thought they were already doing right by their workers. A big fear: some companies will drop their more generous programs as a result and just default into the state plan. The reason? It’s too tough to qualify for the exemption.

Companies are not exactly beating down the doors to apply. As of Friday, the newly formed Department of Family and Medical Leave had received 67 applications for exemptions, out of the tens of thousands of employers in the state.

All exemptions still need to be approved by the agency, a spokesman says, to ensure they meet the new law’s requirements.

Many companies still have to decide how much of the new taxes they should pay, and how much should come out of their workers’ paychecks. The law leaves considerable room for flexibility: Employers are required to pick up at least 60 percent of the medical leave portion of the tax, but don’t have to pay anything for family leave.

No matter how things get sliced, many workers will see their take-home pay drop as a result.