Maine Democrats Celebrate Start of New 1% Payroll Tax on Maine Workers, Businesses

Maine’s Democratic leaders held a press conference in Bath on Thursday to tout the beginning of a new program that will see most Maine businesses and employers pay an additional one percent tax on paychecks to fund a paid leave program that will begin in 16 months.

Starting with the first pay period of 2025, most Mainers will see smaller paychecks, thanks to the so-called Paid Family and Medical Leave program, which was signed into law last year by Gov. Janet Mills (D) as part of a supplemental budget bill.

“The backbone of Maine are small businesses, and as a small business owner myself, I know how hard it is to be able to offer these types of benefits,” said Senate President Mattie Daughtry (D-Cumberland).

[RELATED: Maine’s New Paid Leave Rules: Here’s What Businesses and Workers Should Expect…]

Daughtry, joined for the event by House Majority Leader Kristen Cloutier (D-Lewiston), said that she and other Democratic lawmakers spent four years looking at various paid leave models from other states and countries before developing the legislation that ended up passing into law last session.

The bulk of the actual rules governing the program, though, were subsequently determined through a rule-making process by bureaucrats at the Maine Department of Labor (MDOL), a process that just concluded at the end of last year.

Unlike neighboring New Hampshire’s paid leave model, which is entirely voluntary and allows workers to choose whether they want to pay to opt into the program, Maine’s program is mandatory, meaning employers and employees don’t have a choice about whether or not to participate.

Broadly speaking, the program will see Maine workers and their employers pay an additional one percent of their payroll into a big government fund that will, 16 months from now, be used to fund the administration of partial salary-replacement payments for people who elect to take paid leave.

Although the state has clearly defined how the payroll tax will work, many of the details of how the program will work for businesses of various sizes, including businesses who already offer paid leave programs or who wish to purchase privately offered leave programs, are still nebulous.

Starting with the New Year, Maine employers with at least one employee must begin payroll withholdings under the state’s new paid leave tax. Employers with 15 or more workers will contribute one percent of wages, sharing costs with employees, while smaller employers will contribute 0.5 percent, fully deductible from employees’ pay.

Quarterly reporting and premium payments start in April 2025.

Maine businesses will be forced to use a new online portal, which launches Jan. 6. That portal will handle employer registrations, payroll processing designations, wage reports, and premium payments. Self-employed individuals and tribal governments can also opt in. Employers are required by law to register for the system before April.

[RELATED: Maine Businesses Brace for New 1% Payroll Tax and Paid Leave Mandate…]

The program introduces new administrative, tax, and bureaucratic burdens for businesses of all sizes, which have caused headaches for the people who sign the front of paychecks. However, the vague and ambiguous rules and regulations associated with the new paycheck tax have also frustrated employers, who must now comply with yet another government initiative and its reporting requirements.

This lack of regulatory clarity was underscored on Monday when Robert Carey, the Superintendent of Maine’s Bureau of Insurance, issued public guidance to private insurance companies, urging them not to market any private plans due to an inability to accurately price products.

“[T]hese private plans should not be marketed prior to Bureau approval,” Carey said.

“There is no way to accurately price the product, and accordingly, the information provided to employers may be misinterpreted despite fine print disclosures that the premium rate may change,” said Carey.

“Insurers should instruct their producers not to prepare proposals or estimates for prospective employers until the product has been filed and approved,” he said.

Asked about the letter on Thursday, Daughtry said she’d read it and was looking forward to having a conversation with Carey.

“I have read the letter, and I’m hoping to meet with him and have that conversation,” she said. “But we need to make sure that we have a robust private insurance plan. Like that is key when you look at other states, so that employers can decide what type of plan they’re able to offer.”

But employers are currently unable to evaluate their options for precisely the reasons Carey laid out in his advisory letter.

Since the practical aspects of the program have yet to be settled and so much uncertainty remains around the program’s rules, private insurers can’t begin developing the non-public alternative plans that are allowed under the law.

This, in turn, means businesses can’t evaluate whether they’re better off seeking a private plan or going along with whatever emerges from MDOL and the company that ends up winning the bid to become the third-party administrator for the program.

That yet-to-be-determined third party will have substantial control over what the program ends up looking like, and it will even have the power to adjust the payroll tax without prior approval from the legislature. That third party will also administer the finer details of the program, such as confirming worker eligibility, investigating abuse of the program, and managing payouts.

As Daughtry and Cloutier mentioned during the press conference, some employers are choosing to pay the entire one percent of the tax rather than split the difference with employees. This would included employers of unionized employees, including state government employees, whose pre-existing collective bargaining agreements preclude them from being asked (or required) to pay an additional paycheck tax.

That means state workers belonging to the Maine Service Employees Association (MSEA) aren’t going to see 0.5 percent missing from their paychecks next pay period.

The benefits of the program, which won’t begin until May 2026, will allow workers who meet certain conditions, such as their duration of employment, to take up to 12 weeks of leave from their jobs while continuing to receive a majority of their pay via the government program.

Employers will be forced to rehire any employee who takes advantage of the 12-week paid leave program, but they will have the opportunity to contest requests for leave with the MDOL through a complicated and bureaucratic appeals process.

In cases where a smaller employer believes that accommodating a paid leave request would place an undue burden on the business, that employer can appeal to MDOL for relief.

Otherwise, that hypothetical employer would have to go 12-weeks with an unfilled role or hire an additional employee while knowing that they’ll be forced to rehire the on-leave employee at the conclusion of their leave.

Daughtry and Cloutier spoke at Soft Corner Midwifery on Thursday to emphasize how the program will benefit new families seeking to use maternity and paternity leave after having a child. That setting aligns with Democrats’ focus on how the leave program will benefit new mothers—or, birthing people, as they say.

But the law and its corresponding rules have been so liberally written that workers will be eligible to take 12-weeks of paid leave for almost any reason, including to serve as a primary caretaker for a friend, neighbor, or roommate who is experiencing an emotional or mental health ordeal.

Those provisions have led to concern among business owners that employees will abuse the program in order to take what amounts to paid vacations, knowing that they’ll continue to get most of their salary and that employers will be required by law to hire them back.

Last year, Republicans made a public push to repeal the paid leave tax before it could be implemented, with Rep. Josh Morris (R-Turner) urging lawmakers to support his emergency bill to terminate the program.

However, with Democrats firmly in control of the governorship, the State Senate, and the House of Representatives, Morris’s repeal bill is likely dead on arrival.

Daughtry responded directly to Morris at the press conference Thursday.

“Representative Morris and other folks are seeking to abolish the program before they even give it a chance to work, and not being part of the conversation, I really urge them to be part of the solution and dig in and recognize that this program was built at looking at not only 12 other programs across this country, but also doing a lot of work with private employers and private insurance plans,” Daughtry said.

“So I really encourage Representative Morris, one, to read the commission report — all 400 pages will really show you what an intense amount of work went into it. And I welcome him at any time to sit down in our office and be able to talk about the program more,” she said.

In response, Morris defended his contribution to the conversation about the new payroll tax and paid leave program.

“I think my solution is quite good,” Morris said. “Let’s stop it before it starts.”

Morris also said that the fraud that will characterize the program will be rampant and even enabled by ideologically motivated “social justice warriors” working in Maine’s state government.

[RELATED: Maine Bureaucrats Seek Power to Investigate Businesses With No Evidence of Wrongdoing Based on Hunches…]

Democratic leaders on Thursday downplayed the potential for fraud.

According to Daughtry and Cloutier, paid leave programs are rarely abused in other countries or other states where they exist.

“Fraud has not been seen as being blatant in any of the other states that offer paid leave … and countries. And secondly, I really feel like having the third party insurance administrator managing the claims and approving the claims prevents that in a pretty substantive way,” said Cloutier.

They also stressed that the third-party administrator controlling the program, who has yet to be determined, will be tasked with policing potential fraud. Additionally, they said the bill contains stiff penalties for anyone who is found guilty of fraudulently taking paid leave.

So far, the third-party administrator who will determine almost everything about how this program operates is unknown. However, the MDOL has issued a Request for Proposals (RFP) outlining what qualifications the government is looking for and what conditions prospective bidders will have to meet.

According to the terms of the RFP, some of the large American companies that could potentially qualify to administer the program include Unum Group, The Hartford, MetLife, Sedgwick, and Aflac.

Maine’s business community has been skeptical, if not openly hostile toward the proposal, with Maine Chamber of Commerce CEO Patrick Woodcock previously telling the Maine Wire that lawmakers and state officials have underestimated the scope and scale of the program their foisting on Maine’s businesses.

“I do think that the timeline of the entire program had a fundamental misunderstanding of the scale of this initiative,” Woodcock said. “It is the biggest program for the State of Maine government to set up in a generation.”

“I think a lot of businesses are trying to navigate in 2024 the combination of inflation, labor scarcity, and now this additional payroll tax, and what in 2026 will be the management of a workforce that is now eligible for twelve weeks of leave,” said Woodcock.

Asked by the Maine Wire whether workers can now take 12-weeks of paid leave before quitting a job as a form of mandatory separation bonus, Daughtry couldn’t point to any provision of the program that would prevent this from happening, but said it was something she’d be keeping her eyes on.

“Thing is, you know, unlike other programs that are potentially fully fronted by the employer, like we’re all contributing to this as well, so employees have put that money in, but yes, we’re going to keep an eye on– to make sure that folks aren’t able to sort of abuse the situation,” she said.