Paid Family & Medical Leave, Increased Minimum Wage Legislation Signed by Governor

This past month, Governor Baker signed into law the most comprehensive change for workers in Massachusetts in decades, which the media has dubbed “the grand bargain.”  The new law incrementally increases the minimum wage to $15 over five years, phases out time and half hourly wages over five years, establishes a paid medical and family leave program for all Massachusetts workers and creates a permanent sales tax holiday in August.  The new law represents a compromise based on discussions with a coalition formed by the Massachusetts Retailers Association and a separate coalition formed by Raise Up Massachusetts, who each were able to qualify their respective questions for the November 2018 ballot.  This compromise represents months of negotiations, with each party having made concessions in order to reach a final agreement.  As a result of this compromise, voted on by the Legislature on June 20th, the respective groups withdrew their ballot questions before the July 3rd deadline.

Under the “grand bargain”, the minimum wage will increase to $15/hour over five years while the tipped minimum wage will increase to $6.75/hour also over five years.  The increases will begin January 1, 2019 when the minimum wage increases by one dollar to $12/hour, then will increase incrementally by $0.75 over the following four years until it reaches $15. Tipped worker wages will be brought up to the state minimum wage based on earnings each day, rather than the current policy of calculating the difference between tips and minimum wage each pay cycle. This will ensure that restaurant and other tipped workers face more equitable schedules each week, removing the potential of giving preferential shifts to certain employees.

Paid Family and Medical Leave will go into effect January 1, 2021.  To oversee this program, a Department of Family and Medical Leave will be created under the Executive Office of Labor and Workforce Development. The Department will oversee a trust fund, administer benefits, and ensure compliance of both employers and employees.  Starting January 1, 2019, the trust fund will be paid through an assessment of 0.63% shared between the employer and employee.  Employees will pay 100% of the family leave portion and 40% of the paid medical leave portion, with employers covering 60% of medical leave contributions. Projections suggest that this will equate to between $2.00 and $2.50 per week for employees. The assessment would be adjusted annually to ensure solvency of the trust fund.  Employers with 25 or fewer employees will not be required to pay the employer’s contribution to the trust fund, and there are provisions that would allow independent contractors to contribute to the fund as well.

Through this law, employees can access 12 weeks of family leave to care for a new child or a family member with a serious illness, and 20 weeks in order to receive care or recover from a serious health condition or to care for a family member in the military, with a maximum cap of 26 weeks combined job-protected leave. The paid benefit is calculated through a progressive structure, with replacement rates of 80% up to the first 50% of the State Average Weekly Wage, then every dollar above will be replaced at 50% of the weekly average. At the onset, the maximum possible benefit will be $850 per week, adjusted annually to remain at 64% of the State Average Weekly Wage.  If a business offers their own benefits package that is more comprehensive than the law, they can apply to be exempted from contributing to the state program.

These negotiations were largely a result of the looming questions on November’s ballot.  Raise Up Massachusetts, composed of over 100 unions, advocacy groups and community associations, was able to collect enough signatures to put two questions on this year’s ballot relative to increasing the minimum wage to $15/hour (phased in over four years, rather than five in the law passed) and creating a paid medical and family leave program. At the same time, the Massachusetts Retailers Association collected enough signatures to put a question on the ballot relative to reducing the sales tax from 6.25% to 5%, effective January 1, 2019.  This would have resulted in an annual revenue reduction of $2 billion.  For the current fiscal year, the passage of the sales tax ballot question would result in having to cut $1.2 billion in state services and programs between January and June 2019.  The compromise reached through the so-called “grand bargain” was an agreement between the Retailers Association, Raise Up, and many other stakeholders, with each side offering small changes in order to find a middle ground that doesn’t place the burden on any one party. Rather than lowering the base sales tax rate, the compromise establishes an annual sales tax free weekend each August, with a projected loss of state revenue of between $25 and $35 million. At the same time, the compromise allows wages to increase and creates the most comprehensive paid leave program in the country, while phasing out time-and-a-half premium pay on Sundays and holidays.  Premium pay will be slowly phased out to match the increase in the minimum wage over five years, ending in 2023. The law does not prohibit employers from providing increased hourly wage payments on certain days, whether by contract agreement or individual employer decisions.  The law also does not revoke any hourly wage increase for Sundays or other days as written in current contracts. Massachusetts was one of only two U.S. states still requiring premium Sunday and holiday pay, along with Rhode Island.

The Supreme Judicial Court ruled unconstitutional a ballot question supported by Raise Up Massachusetts, which would have amended the state constitution to increase the income tax on high-income earners by adding a 4% tax to any individual income over $1 million.  It would have mandated funding to be divided between education and transportation infrastructure spending; the projected additional revenue to the state was approximately $2 billion.  Currently, the Massachusetts Constitution establishes a flat tax rather than a tiered tax system.  However, Article 48 of the state constitution requires that all ballot questions must be of a single purpose and the question cannot earmark funding to a specific program. The Court ruled that the Fair Share Amendment, or “Millionaire’s Tax,” ballot question was composed of two questions, a tax increase and earmarking spending, and thereby was unconstitutional and unable to appear on the November ballot. This decision amplified negotiations on the above ballot questions, leading to a final compromise before the July 3rd ballot filing deadline.