Massachusetts family leave agency clarifies counting self-employed contractors

The Massachusetts Department of Family and Medical Leave has issued clarification on when 1099-MISC workers should be included in a business’s workforce count and whether the business needs to report them for the purposes of the paid family and medical leave program.

Under the new guidance, in order for a 1099-MISC worker to be considered a part of an employer’s Massachusetts workforce count, that contractor must: (1) perform services as an individual entity; (2) live in Massachusetts; and (3) perform services in Massachusetts.

Further, the 1099-MISC worker “must not” be an independent contractor as defined by the Massachusetts unemployment statute, G.L.c. 151A.

The department’s press release says that the state unemployment statute is a guiding authority for the PFML program. The statute excludes from “employment” services that meet the three-part test.

In announcing the new guidance, the department reported DFML staff had met with representatives from “hundreds” of businesses across the commonwealth over the course of the summer to discuss compliance issues with the PFML program. According to the department, the new guidance is in response to certain questions that repeatedly came up in the course of those discussions.

Generally, 1099-MISC contractors are individuals or sole proprietors who reside and perform services in Massachusetts for whom a business is required to report payment for services on IRS Form 1099-MISC. These individuals must be performing services in the employer’s trade or business or be regularly engaged to perform services for the business.

Under the PFML program, 1099-MISC workers count toward an employer’s total number of covered individuals for purposes of contributions and reporting only if 1099-MISC workers make up more than 50 percent of their total Massachusetts workforce (W-2 employees and 1099-MISC workers combined). Otherwise, an employer is not required to contribute or report on 1099-MISC workers.

The Massachusetts Legislature enacted the Paid Family and Medical Leave Law in 2018. Beginning in January 2021, most workers in the state will be eligible to get up to 12 weeks of paid family leave and up to 20 weeks of paid medical leave. The program will be funded by premiums paid by employees, employers and the self-employed. Contributions to the program begin Oct. 1.