Stephanie Haber

The Real Scoop on Calculating PFL Withholdings

August 10, 2017

PFL Payroll

Following the common, literal interpretation of the “Premium Rate Decision” document, you might be inclined to assume that neither rates nor withholdings could exceed $1.65 per week, right? Wrong!

As we have published all along, PFL was intended to work with an annualized cap of the weekly maximum contribution ($1.65/week x 52 = $85.56), not a week-by-week cap – and NY State just issued written clarifying confirmation of the actual intent in the Department of Financial Service’s Insurance Circular Letter No. 11 (2017) from July 28, 2017, which states that insurers must collect the correct premium based on the total annual wages earned – not weekly wage:

“Each insurer must collect premiums equal to 0.126% of the employee’s annual wages for the calendar year up to and not exceeding 0.126% of the annualized statewide average weekly wage. For the calendar year 2018, the annualized statewide average weekly wage is $67,907.84, which means the maximum annual premium to be charged to an employee for paid family leave benefits coverage for 2018 is $85.56.”

Correspondingly, the same methodology applies to the maximum contribution rate, i.e., how much employers, who choose to take the Paid Family Leave deduction from their employees, may withhold from them. While Paid Family Leave is not meant to be a tax, if you’re familiar with FICA, you get the idea of how PFL withholdings will work. If not, let’s break it down for you:

Employees making less than $67,907.84 per year and who receive the same pay in regular intervals, wouldn’t see any variations in their deductions: their withheld amount for PFL would be identical on every paycheck for the whole year. But employees with varying paycheck amounts, such as a sales person with a low base salary who hits a big bonus in some pay periods, the PFL withholdings would vary and may exceed the $1.65 in a week with a high bonus. And with employees like this, it makes a difference whether you withhold based on an annualized cap or a week-by-week cap.

Let’s look at John, a data administrator, and Jeff, a business development director for international accounts:

John makes $50,000 a year and has no bonuses or extra compensation. This puts his typical weekly income at $961.54. When multiplying this by the maximum contribution rate of 0.126%, Jeff can expect to contribute $1.21/week over the course of the full year. This adds up to an annual total of $62.92, which does not hit the annual cap of $85.56.

Jeff has a base salary of $80,000. Jeff’s typical weekly income is based on his base salary (not his total annual income) to calculate his typical weekly contribution: $1,538.46 x 0.126% = $1.94. Yes, this is above the $1.65/week that most people assumed would be the cap. Without a bonus, he would meet his annual maximum contribution of $85.56 in the summer, and not have any further withholdings for the rest of the year.

But Jeff landed a big international account in February, worth a $50,000 bonus. This changes things! His contribution in the bonus week now jumps to $64.94 (bonus plus typical weekly income times 0.126%). Due to the contribution spike in this week, he now pays his maximum contribution much sooner, in spring, and thereby doesn’t need to render any further PFL contributions for the remainder of the year, no matter how many additional deals (bonuses) he lands.

See chart for details:

Week in 2018

Typical Weekly Income/Wages

Weekly PFL Contribution

Cumulative Contribution in 2018

1

$1,538.46

$1.94

$1.94

2

$1,538.46

$1.94

$3.88

3

$1,538.46

$1.94

$5.82

4

$1,538.46

$1.94

$7.75

5

$1,538.46

$1.94

$9.69

6

$1,538.46

$1.94

$11.63

7

$1,538.46

$1.94

$13.57

8

$51,538.46

$64.94

$78.51

9

$1,538.46

$1.94

$80.45

10

$1,538.46

$1.94

$82.38

11

$1,538.46

$1.94

$84.32

12

$1,538.46

$1.24

$85.56

13+

$0.00

$0.00

$85.56

 

 

In summary:
PFL withholding can be a challenge, especially for employees whose compensation varies from week to week.  The main thing to keep in mind is: if you decide to take deductions from your employees, by the end of 2018, you want to have collected 0.126% of annual wages capped at 0.126% of the annualized NYSAWW of $67,907.84, or $85.56.

There seem to be two reasonable ways to make this happen:

  1. Do it like FICA (although PFL is not intended to be a tax): Withhold 0.126% of every wage dollar paid in 2018 until the $85.56 cap is met, then stop withholding, just like in our example for Jeff.
  2. Bucket employees at the beginning of the year into those who you are pretty sure will make more than $67,907.84 and those who will make less. For those who make more, withhold $1.65 per week.  For those who make less, withhold 0.126% of every wage dollar. Just be aware to reconcile at the end of the year if there were salary changes along the way that moved employees between buckets.
     

Use our new PFL Premium Estimator Tool to estimate how much to expect PFL will cost, and helps to ensure you are withholding the correct amount from your employees. 

Need answers directly from a PFL Expert? Email us at pflquestions@shelterpoint.com

 

This material is not intended to provide legal counsel.  Please consult with an appropriate professional for legal and compliance advice.

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