Employee PFML Liability

[Medlin Software, Dennis]

More of a vent than a question, but discussion is always welcome.

Many states are implementing PFML (paid family and medical leave).  Some state PFML has language allowing the employer to pay some or all of the employee liability.  This, I have an issue with.  The state PFML departments are setting up employers and employees for problems, should employers choose to insulate employees from their liability.  Why?  Employers cannot "choose" to pay employee liabilities with no consequences.  Such payments actually increase taxable wages for the employee (and increase all other tax liabilities as well).  Think of situations where it is common for an employer to insulate an employee from SS/Medi (and the charts showing how much to increase taxable wages when this is done).

I asked one state PFML director if they had considered this issue, and whether or not they had a ruling from their own state and from the IRS as to whether or not an employer paying an employee's PFML liability is exempt from taxation.  The answer was that state's PFML folks do not get involved with other taxes, so no, they had not thought about the issue or sought rulings.

For my customers, our PFML withholding calculations are done at the employee's full rate.  When I get asked about handling a lesser rate, or no employee withholding at all, I have to explain the issue and if the employer insists on insulating their employees, suggest withholding the full employee amount, but consider increasing their wages by the PFML employee rate (plus some additional factor to have their net be about the same as before PFML).

Likely though, no one will notice, yet I have to stick to what I believe is correct, and try to educate.

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Some of the interesting PFML setups are when those with less than 25 employees do not have to pay the employee share (which must then be made up by all employees, and by all employers with 25 or more employees).  Those states must have smaller employers with a large political influence, or maybe just as likely, politicians who want to sound bite how they helped the small employers (leaving out how the money is made up by higher employee rates on all, and higher employer rates on the larger employers).

Another is a state where tips are NOT considered wages for PFML.  (Must be a good restaurant lobby.)  Tipped employees are only taxed PFML on what is likely minimum wage, and can only get paid PFML based on their likely minimum wage.  Perfect, those who would really need PFML cannot afford to use it.

But then again, I know complication is what keeps us all in soda and candy... and never will things get easier now that payroll calculations have been fully politicized.