How CPAs Can Prep Clients for Maryland's New Paid Leave Law

Following Massachusetts, Washington D.C., New York and several other states, Maryland is set to implement paid family and medical leave starting in October 2023. Employees who are covered by the provisions of the Time to Care Act (TTCA) will have to wait until 2025 to get access to paid leave benefits, but clients with employees who work in Maryland should already be preparing for this change. Payroll and tax obligations are going to change for those businesses starting soon. CPAs can provide a valuable service to clients who will be affected by Maryland’s paid leave law, by preparing them now for what that effect is going to look like.

Maryland’s Paid Leave Law: An Overview

Every state’s paid and unpaid leave laws make slightly different provisions, and require slightly different things from employers. That can make payroll and paid leave compliance issues complicated for clients with multi-state employees. Here’s a summary of the key elements of Maryland’s paid leave law:

Any entity that employs at least one person working in Maryland is going to be obligated to remit and make contributions on the employee's behalf to Maryland’s newly established Family and Medical Leave Insurance (FAMLI) Program. Employees don’t necessarily have to live in Maryland to be covered, only work there.

Maryland employees may share the cost of FAMLI contributions with their employers. Any entity with fewer than 15 employees can avoid the employer contribution to a Maryland employee’s paid leave, but must still collect and remit the employee’s portion. Both the employer and employee portions of contributions will be owed starting in October.
We don’t yet know how much employees and employers will be required to pay. The exact contribution rate won’t be announced until mid-2023. (For context: the total contribution rate for the Massachusetts PFML program will be 0.63% of wages in 2023, while Washington’s PFML 2023 contributions will be 0.8% of wages.)

Starting on January 1, 2025, employees who are covered by the FAMLI program will become eligible for up to 12 weeks of paid family and medical leave. The fund will pay out a maximum benefit of $1,000 per week of qualified leave.

TTCA also includes a job protection provision. Maryland employees covered by this paid leave law are entitled to maintain any employer-sponsored health benefits while on leave and return to their own job or an equivalent job when their paid leave expires.

Paid Family and Medical Leave in Other States

Maryland will be the 10th state to implement paid family leave. Most of those programs have been enacted within just the past few years. Oregon and Colorado just barely beat out Maryland, with their paid leave laws also taking effect in 2023.

Because statewide paid leave laws are such a recent trend, CPAs and their clients may be navigating them for the first time. It would be useful to look to other states and see how businesses there are handling cash flow and profitability issues, specifically around the costs of having employees out for up to 12 weeks. But several states with paid family leave programs have only just begun to provide paid benefits, so it may be too early to gauge how well paid leave laws are working for employees and how much strain they’re creating for small businesses.

How Can CPAs Help Prepare Their Clients?

Anticipating the ways that Maryland’s paid leave law is going to affect clients in the future allows CPAs to provide proactive support. You don’t want clients calling in fall of 2023 because they’re panicked and unready for the shift. Here are just a few of the ways CPAs can provide value to clients ahead of Maryland’s paid leave law being implemented.

Prepare them for payroll process updates. All of your clients with Maryland employees will need to update their payroll processes by October 2023 in order to remit the employee portion of paid leave contributions. The actual process of updating their payroll system to account for those contributions shouldn’t be complicated (especially for ConnectPay clients, who know they can call their connected services representative with any questions). But CPAs can make sure any clients who are affected by Maryland’s paid leave law know what their payroll obligations are going to be now so they’re not surprised in October.

Start planning for the real costs of paid leave. Clients with Maryland employees are going to incur new costs in both 2023 and 2025, and this is where they’re going to need guidance from their CPAs.

In 2023, clients with more than 15 employees are going to have to prepare for the costs of paying the employer share of any Maryland employees’ contributions. Even without concrete information about what the contribution rate will be, CPAs and clients can start talking about where those funds are going to come from and how that might affect cash flow.

In 2025, all clients with Maryland employees will also have to adjust to the costs of having employees out of work for extended periods. It’s not too early for those clients to be thinking about how paid leave will affect long-term financial planning and profitability. What might happen in 2025 when employees are able to start taking 12 weeks off from work? How will the budget account for replacement labor and/or reduced productivity?

Anticipate any multi-state/nexus issues. With the rise in remote work and the growing trend of paid leave laws going into effect, more and more clients are going to have to navigate nexus issues around their multi-state employees. For example, what if a client’s employee works part-time in their Maryland office and part-time from home in D.C., which has its own paid leave program? CPAs might not have all the answers yet, since we’re still waiting for Maryland to release more guidance, but it’s smart to start talking through some of those multi-state issues now so there’s plenty of time to find answers.

Need Help Preparing Payroll for Paid Leave Law Changes?

As we move into 2023, clients with Maryland employees are going to be calling their CPAs with questions—and some of those are going to be questions about their payroll processes and making contributions under the new paid leave law.

With ConnectPay’s CPA Partners program, CPAs don’t have to answer those questions alone. Just call your Connected Services Representative and someone will always pick up during business hours. We’ll loop in our tax team if necessary, to get you and your clients the payroll answers you need. Let’s connect so you can learn more.

By George Heidelmaier

George Heidelmaier is the Maryland District Sales Manager for ConnectPay. His background of over 30 years of experience in practice management and payroll includes starting the payroll bureau, Its Payday, in 2008 with his wife, Kathy. In 2021 the family-owned business merged with ConnectPay to provide advanced technology for their loyal clients. As a former small business owner, George confidently helps entrepreneurs simplify their payroll needs. George and Kathy are deeply connected to their local community, serving on several nonprofit boards.