Editor's Note: This blog was originally posted November 13, 2018 but has been updated as of June 13, 2019 for accuracy and comprehensiveness.

Massachusetts employers will face two important changes next year with respect to employee compensation. Here are the details.

1. Minimum Wage Hike

As of January 1, 2019, Massachusetts’ minimum standard wage rate will increase from $11 to $12 per hour. This will be the first in a series of annual increases that will raise the hourly minimum standard wage rate to $15 in 2023.

Likewise, the state’s hourly minimum wage rate for tipped workers will increase from $3.75 to $4.35 next year. Eventually, the minimum tipped wage rate will ratchet up annually to $6.75 in 2023.

2. Paid Family and Medical Leave Program

Massachusetts recently introduced a state-mandated paid family and medical leave program that borrows heavily from the federal Family and Medical Leave Act (FMLA), except for the employer financing obligations. It covers up to 12 weeks for family leave and 20 weeks of medical leave. The combined limit under Massachusetts’ program is only 26 weeks (compared to 32 weeks under the federal FMLA).

The cap for weekly benefits under this law is currently $850. Actual amounts are based on 80% of an employee’s average weekly wage.

Employers can’t require employees to exhaust any regular paid leave they’ve accrued before tapping into the new family and medical leave fund. Also, as under the FMLA, employees returning from leave must be given their same or an equivalent job.

The Massachusetts Department of Labor and Workforce Development has established a new division to administer the paid family and medical leave program and to dispense cash to eligible employees. Funding will come from a new entity called the “Massachusetts Family and Employment Security Trust Fund.”

Implementation Details

The state’s program will launch in two phases: 1) funding the trust, and 2) paying benefits to eligible workers. The trust will be funded by a combination of employer contributions and withholding from employees’ paychecks, starting on October 1, 2019 (originally July 1, 2019, but MA state officials agreed on a six month extension on June 11, 2019). Here are the details:

Employers with at least 25 employees must contribute up to 0.63% of wages (to a maximum of the Social Security wage base). Employers can reduce their share of that amount by shifting to employees, through payroll deductions, the entire cost of the family leave portion of the benefit, and up to 40% of the medical leave portion.

For example, if an employer chooses to cover the entire cost, its obligation for an employee earning $25 an hour would total around $315 a year based on 2,000 hours worked without overtime ($25 × 2,000 hours × 0.63%). The state will periodically adjust the percentage-of-wages multiplier, depending on the trust’s administrative expenses.

Self-employed contractors count as employees for purposes of this program if a company uses as many (or more) self-employed workers who receive Forms 1099 as it does regular employees. This rule aims to discourage employers from converting employees into contractors to circumvent the law.

Employers can opt out of the program if they choose to implement a paid leave program that’s at least as generous as the new state-mandated program.

Employees won’t be eligible for paid family and medical leave benefits until 2021. The delay is intended to allow the trust to accumulate sufficient funds to pay for benefits-eligible employees.

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We continually monitor changes in state and federal labor laws that will impact your bottom line. These changes could be costly for retailers, manufacturers, restaurants and other employers that rely heavily on a large workforce to operate their businesses.