Seyfarth Synopsis: Yesterday, the Department of Family and Medical Leave (DFML) issued new guidance clarifying when a business should include 1099-MISC workers in the company’s workforce count for contribution, coverage, and reporting purposes. The DFML further reversed its previous position and clarified that an employer’s quarterly reports should not include 1099-MISC workers if the 1099-MISC workers make up 50% or less of its Massachusetts workforce.

When To Include 1099-MISC Workers In Your Company’s Workforce Count

As previously reported, if 1099-MISC workers make up more than 50% of a company’s Massachusetts workforce, a company will have to make PFML contributions on their behalves and these workers will count toward the company’s 25-worker threshold, which will affect the company’s PFML contribution levels. For this 50% calculation, the DFML clarified when to include 1099-MISC workers in the workforce count.

Employers must count 1099-MISC workers as part of their Massachusetts workforce count if the 1099-MISC workers:

  • Perform services as an individual entity;
  • Live in Massachusetts;
  • Perform services in Massachusetts; and
  • Are not defined as an independent contractor under the Massachusetts Unemployment Statute’s independent contractor test (M.G.L. c. 151A, s. 2).

Essentially, the DFML has clarified that properly classified independent contractors do not fall within an employer’s workforce count for PFML purposes. To be properly classified as an independent contractor, this test generally requires that:

a.   the individual is free from the company’s control and direction in connection with the performance of the services; and

b.   such service is performed either outside the usual course of the company’s business or is performed outside of all the places of business of the company for which the service is performed; and

c.   such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

Thus, if an individual or sole proprietor 1099-MISC contractor resides and performs services in Massachusetts and fails this independent contractor test, the worker should be included in the employer’s workforce count when calculating whether more than 50% of the workforce is comprised of 1099-MISC workers. Otherwise, a 1099-MISC worker should not be included.

The DFML’s clarification is likely aimed at balancing the Legislatures’ intent to provide PFML benefits to misclassified workers with the serious concerns raised by the business community, including the Associated Industries of Massachusetts (“AIM”), regarding confusion, compliance challenges, and data security risks associated with collecting tax and financial information from 1099-MISC workers.

Quarterly Reports Should Not Include 1099-MISC Workers If 1099-MISC Workers Comprise 50% Or Less Of An Employer’s Massachusetts Workforce

In further response to these concerns, the DFML reversed its prior position and announced that employers are not required to report payments made to 1099-MISC workers in the company’s quarterly reports if they make up 50% or less of the employer’s Massachusetts workforce. This is welcome news to employers, as the final regulations did not provide clarity on this question and the DFML’s position on it has changed multiple times over the last nine months.

Other Noteworthy Recent Developments

  • For the upcoming October 1, 2019 commencement of PFML payroll withholdings, the DFML recently clarified that withholdings should begin with the first wage payment made on or after October 1.  In other words, all paychecks issued on or after October 1 are subject to contribution withholdings, even for services performed in September but paid for in October.
  • The DFML clarified that certain types of employment that are excluded under the Unemployment Statute will also be excluded from PFML coverage.
  • Employers who employ H-2A visa holders are exempt from remitting contributions to the DFML on behalf of those workers. All other temporary foreign visa programs (e.g., F-1, OPT, J-1, and J-2), however, are subject to the contribution requirements and are considered covered individuals if they otherwise meet the criteria.

Reminder: The September 30th Deadline To Provide Notice Is Approaching

As a reminder, employers and covered business entities are required to provide written notice to employees and covered individuals by September 30, 2019.  The English version for employers with 25 or more covered workers can be accessed here; and the English version for employers with less than 25 covered workers can be accessed here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.