In order to support the District of Columbia’s new Universal Paid Leave Act (the Act), covered employers will be required to contribute to the Universal Paid Leave Implementation Fund (the Fund), by way of a payroll tax of 0.62 percent of the annual gross wages of each of their covered employees. The Act will require employers to begin contributing to the Fund effective July 1, 2019, and eligible employees will be able to file claims for those leave benefits from the DC government beginning July 1, 2020.

The Act creates a paid leave system funded by employers that have employees working in the District, regardless of whether the employer themselves has a physical presence within the District. The Act applies broadly to all employers that directly or indirectly exercise control over employees working in the District and are required to pay unemployment insurance for those employees.

What is the tax, and who has to pay it?

The Act provides for paid parental, family, and medical leave for eligible employees in the District, beginning in July 1, 2020. These three paid leave benefits will be funded by a quarterly employer payroll tax of 0.62 percent of an employer’s covered employees’ total wages. The quarterly contributions are assessed based on wages paid in the immediately preceding quarter. Unlike the District’s unemployment insurance tax (frequently cross-referenced in the Act), which is capped at the first $9,000 of wages paid to an employee, the Act does not cap the payroll tax paid into the Fund by covered employers.

The timing of the first payment of the tax depends on whether employers are businesses or self-employed individuals opting-in to the program. For businesses, the first contributions begin July 1, 2019 for wages paid to covered employees from April 1 through June 30, and must be reported and paid by July 31, 2019. The first payment of tax for self-employed individuals will begin October 1, 2019 for income earned between July 1 and September 30.

Under the Act, a covered employer is an employer that “employs one or more individuals in any employment” in the District and is required to pay unemployment insurance tax on behalf of its employees. It is important to note that an employer that does not maintain a physical location in the District will still be covered by the Act and required to contribute to the Fund if the employer is subject to the unemployment insurance tax because it employs individuals whose employment is localized in the District. Further, the size of a business will have no bearing on whether an employer is covered under the Act as there is no minimum employee threshold for eligibility.

The Act defines a “covered employee” as any employee who spends more than 50 percent of their work time performing services in the District. In practice, determining employer tax liability under the Act relies on a similar analysis as determining employer liability for unemployment insurance purposes. The default rule is that if a covered employer pays DC unemployment insurance on an employee for a quarter, then the employee is presumed to be a covered employee for purposes of the Act. Employers may rebut this presumption by showing: (1) that the employee worked at least 50 percent of their work time in a single jurisdiction outside of the District, and (2) that the work performed outside of the District was not incidental in nature, temporary or transitory in nature, or consisting of isolated transactions. The Department of Employer Services will make this determination on a case-by-case basis.

What else do covered employers have to do?

The Act includes several reporting and recordkeeping requirements that covered employers should consider while reviewing their current payroll systems to ensure compliance with the Act. Administratively, the requirements and terms of the Act are similar to the requirements associated with the District’s unemployment insurance tax regime. As mentioned above, the Fund will be supported by a quarterly employer payroll tax based on the immediate prior quarter of wages paid to covered employees, in a similar method to paying the unemployment insurance tax. Covered employers will be required to submit quarterly wage reports similar to the UC30 wage report that is required for unemployment insurance taxes. Further, covered employers will have to submit a separate wage report form for paid family leave that will be provided by the Office of Paid Family Leave.

Employers will be required to keep payroll records of no less than three years indicating the name and social security number (or TIN), dates of employment, pay period dates, and the wages for those pay periods for each covered employee. Employers will also be required to post and maintain the paid family leave notice (in the same location as other notices to employees) beginning this July.

What should covered employers be thinking about?

All employers with employees living or working in the District should consider whether or not they are covered employers and will need to start paying the tax as of July 1. They should also reach out to internal payroll and accounting teams to confirm that their systems are set up to begin processing these quarterly payments and the associated reporting obligations.

As the Act goes into effect, covered employers should consider reviewing their current paid leave benefits to determine how their benefits programs will interact with the District’s paid leave benefits. Given that the Act does not provide an exemption for employers with their own sponsored paid leave benefits program, employers with employees working in the District may consider adjusting their programs to account for the paid leave provided by DC. A covered employee’s right to the District’s paid leave payments, as provided by the Act, will not be limited or curtailed by the employee’s right to claim benefits under the employer’s paid leave policy. As such, the Act leaves open the possibility for employers to determine whether the Act’s leave should serve as an offset against the employer’s program.

Where can covered employers access additional information?

More information about the Act and a benefits calculator can be found on the Department of Employment Services website.

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