The Massachusetts electorate was scheduled to vote this coming November on three separate ballot initiatives: (1) an increase in the minimum wage from the current $11 to $15 an hour by 2022, (2) paid family and medical leave financed by a payroll tax, and (3) a reduction in the Massachusetts sales tax and a tax-free weekend every year.
This past May, Governor Charlie Baker (R) told the media that he was in discussions with initiative proponents and leaders of the Massachusetts legislature to reach a "grand bargain" before the ballot initiatives went to the voters.
The talks were successful, and a compromise was reached. On June 28, Gov. Baker signed House Bill 4640, “An Act Relative to Minimum Wage, Paid Family Medical Leave, and the Sales Tax Holiday.” As described below, the new law brings paid family and medical leave to Massachusetts workers, and increases the minimum wage over a five-year period (rather than the four years in the ballot version), in exchange for a reduction in overtime-pay mandates for Sunday and holiday work and the creation of a permanent sales-tax holiday.
Nik DeCosta–Klipa of boston.com has written that the legislature and the Governor were “perhaps preempt[ing] the inevitable, as polls showed high support for the minimum wage, paid leave and sales tax ballot questions.”
The following is a summary of the key provisions of the “Grand Bargain.” We’ll follow up soon with a dedicated bulletin on the provisions of the paid family and medical leave law.
Minimum wage
The minimum wage in Massachusetts will increase over a five-year period from the current $11 an hour to $15 an hour. Starting January 1, 2019, the increases will be as follows:
- 1/1/19: $12 an hour
- 1/1/20: $12.75 an hour
- 1/1/21: $13.50 an hour
- 1/1/22: $14.25 an hour
- 1/1/23: $15 an hour
When the minimum reaches $15 an hour, Massachusetts will have the highest state minimum wage in the country, along with California, New York, and Washington D.C. (assuming that they don’t raise their minimum wages above $15 an hour in the meantime).
The minimum cash wage for tipped workers will also gradually increase, from the current $3.75 an hour to $6.75 an hour in 2023:
- 1/1/19: $4.35 an hour
- 1/1/20: $4.95 an hour
- 1/1/21: $5.55 an hour
- 1/1/22: $6.15 an hour
- 1/1/23: $6.75 an hour
The law does not index the minimum wage to inflation, as was proposed in the ballot question.
Sunday pay
Massachusetts currently requires that retailers pay time-and-a-half to employees who work on Sundays or holidays, even if their hours do not exceed 40 in a single workweek. The new law will phase out this requirement as follows:
- 1/1/19: Employees will be paid 1.4 times their regular rate for Sunday and holiday work.
- 1/1/20: Employees will be paid 1.3 times their regular rate for Sunday and holiday work.
- 1/1/21: Employees will be paid 1.2 times their regular rate for Sunday and holiday work.
- 1/1/22: Employees will be paid 1.1 times their regular rate for Sunday and holiday work.
- 1/1/23: Employees will be paid 1.0 times their regular rate (in other words, they will be paid their regular hourly wage) for Sunday and holiday work.
The phase-out of Sunday and holiday premiums has a hidden complication: According to Section 7(e)(6) of the federal Fair Labor Standards Act, extra compensation provided by a premium rate for work on Sundays or holidays cannot be excluded in calculating an employee’s regular rate. The only exception is when the premium rate is at least 1.5 times the rate for comparable work performed in non-overtime hours. Therefore, under current law in Massachusetts, which requires time-and-a-half for Sunday and holiday work, a retailer does not have to include the Sunday/holiday premium in calculating employees’ regular rates. However, once the level drops to 1.4 in January 2019, the premium will have to be included in calculating the regular rate for overtime purposes. As a result, the retailer could end up having to pay more overtime, in addition to the Sunday/holiday premium.
The new Sunday law continues to provide that employees cannot be required to work, or be penalized for refusing to work, on Sundays or holidays.
Paid family and medical leave
As already noted, we will issue a bulletin with more details of the paid family and medical leave program. The following is an overview:
In 2021 all “covered Individuals” will be allowed to take up to
- 12 weeks of paid family leave
- 20 weeks of paid medical leave
- 26 weeks of paid family leave to address issues that arise relating to the deployment of a family member for military service or their injury or illness suffered in the line of duty.
A “covered individual” is defined as (1) a current employee “whose employment has been with an employer in Massachusetts,” regardless of length of service with the employer or hours worked; (2) a self-employed individual who has elected coverage under the Act and reported required self-employment earnings; and (3) a former employee, assuming that the employee has not been separated from employment for more than 26 weeks at the start of the former employee’s family and medical leave. (Because the payments will be made from a state fund, former employees can receive pay as well as current employees.)
The payment will be in the form of a wage replacement from a newly established Family and Employment Security Trust Fund. Covered individuals can receive the payments after a seven-day waiting period. The wage replacement will be capped at $850 a week (80 percent of the employee’s wages up to 50 percent of the state average weekly wage, plus 50 percent of the employee’s wages that exceed the average weekly wage until the maximum is reached).
Covered individuals may take paid family leave for the following reasons:
- to care for a family member (as defined in the law) who has a serious health condition;
- to bond with the employee’s child during the first 12 months after the child’s birth or the first 12 months after the placement of the child with the employee for adoption or foster care;
- because of any qualifying exigency arising out of the fact that a family member is on active duty or has been notified of an impending call or order to active duty in the Armed Forces; or
- to care for a family member who is a covered service member with a serious injury or illness incurred or aggravated in the line of duty.
Covered individuals may also take paid medical leave for their own serious health conditions. Employees cannot take more than 26 combined weeks of paid leave in a single year.
The ballot proposal would have provided up to 16 weeks of paid family leave and up to 26 weeks of paid medical leave.
Payroll tax increase
To pay for the new family and medical leave, the law includes a payroll tax increase amounting to 0.63 percent of each employee’s wages, or an adjusted amount set by the Department, which will be submitted to the Family and Employment Security Trust Fund. Employers may require employees to pay a portion of those contributions, and employers with fewer than 25 employees are exempt from paying the employer share of the contributions.
Employers may apply to opt out of the state program if they offer benefits greater than or equal to what an employee would receive in the state program.
Sales tax holiday
The sales tax ballot proposal was to lower the state sales tax from 6.25 percent to 5 percent, and to establish a permanent sales tax holiday weekend in August.
Under the “grand bargain,” the sales tax will remain at the current 6.25 percent, but there will be a permanent two-day weekend each August in which the sales tax does not apply. As noted in Section 4 of the Act, there are some exceptions to the tax holiday: “telecommunications, tobacco products, marijuana products, alcoholic beverages, gas, steam, electricity, motor vehicles, motorboats, or a single item the price of which is more than $2,500.”
Massachusetts established sales tax holidays in 2004, but the legislature voted to forgo them in 2009, 2016, and 2017 because the State needed the revenue generated by the tax. Under the new Act, legislators will be required to select a specific weekend in August of each year for the tax holiday and must do so by June 15 of the relevant year.
If you would like to discuss any of these new requirements or the impact on your Massachusetts operations, please contact any attorney in Constangy’s Boston Office. Again, we will be issuing a bulletin soon that will provide more detail about the provisions of the paid leave law.
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