Is Your Business Ready for the District’s New Paid Family Leave Payroll Tax?

June 19, 2019

In less than two weeks, the Department of Employment Services will begin requiring District of Columbia employers to contribute to a fund pursuant to the Universal Paid Leave Amendment Act of 2016. The Act creates the Universal Paid Leave Implementation Fund, a paid family leave program funded by covered employers through a payroll tax. Required employer contributions will begin on July 1, 2019 and are part of the District’s ongoing efforts to plan, develop, and administer a paid leave program for D.C. employees.

Generally, a covered employer means any employer that (1) exercises control, either directly or indirectly, over the wages, hours, or working conditions of at least one employee performing services in the District; and (2) is required to pay unemployment insurance with respect to the employee’s wages. Thus, the definition of a covered employer can include businesses that do not have a physical location in the District. Covered employers are subject to a new payroll tax of 0.62% of covered employees’ gross wages for the preceding quarter. Generally, taxable wages are those of employees that perform at least 50% of their services for an employer from within the District. However, it is important to note that under the Act, the wages upon which the tax is levied is not contingent upon the employee being a resident of the District.

Starting on July 1, 2019, the District will begin collecting the tax from employers to finance the new paid leave fund. The first contribution amount will be computed on wages paid from April 1, 2019 through the end of June 2019. Going forward, the tax is due by the last day of the month, which immediately follows the close of a calendar quarter. The tax may not be administered as a reduction of employee wages, or some other withholding, and is due regardless of additional leave benefits provided to employees. The Department of Employment Services will begin administering the following leave benefits to eligible claimants on July 1, 2020:

  • Up to eight weeks of parental leave to bond with a new child
  • Up to six weeks of family leave to care for a seriously ill family member
  • Up to two weeks of medical leave to care for one’s own serious health condition

Employers not in compliance with the contribution obligations will face penalties and interest. Specifically, the applicable penalty and interest provisions are those found in the District’s unemployment tax law. which provide for a 10% penalty of the amount due for failing to make the required contribution or making a late contribution. An interest rate of 1.5% of the unpaid balance per month will be assessed until the contribution is made. Employers may be liable for other penalties as well, such as not posting notice of employees’ rights under the Universal Paid Leave Act or not making tax payments online.

District employers should contact their payroll administrators now to determine the inaugural batch of wages subject to D.C.’s new payroll tax. Employers that are not yet registered to pay the employer payroll tax can do so through the Department of Employment Services.

Contact your Aronson tax advisor or Michael Colavito at 301.231.6200 if you have questions about navigating the implementation of D.C.’s new paid family leave program.