An employee is about to start Paid Family and Medical Leave, and somewhere between the good wishes and the coverage plan, a practical question surfaces: what actually happens to payroll? Do you keep paying them? Do you stop? Who handles the taxes? For a small Massachusetts business without an HR department, this is the part that feels the most likely to go wrong.
Here is the short answer: the state pays your employee's PFML wages, not you. On payroll, your job is to keep collecting the employee's share of benefit premiums, handle any PTO top-up, remit your PFML contributions on wages you actually pay, and point the employee to the 1099-G the state issues for their benefit. That is the whole list.
Here is the reassuring version. Massachusetts built PFML so that the state, not you, pays the leave. Your payroll role shrinks to a handful of small, manageable tasks. This guide walks through exactly what those tasks are, in the order you will hit them.
The one thing to understand first: the state pays, not you
When your employee is on PFML, the Commonwealth pays them a weekly benefit directly. You do not run payroll for those wages. You do not front the money and wait for reimbursement. The Department of Family and Medical Leave (DFML) calculates the benefit, and the check goes straight to your employee.
In 2026 the benefit tops out at $1,230.39 per week, and most leaves start with a seven-day unpaid waiting period before any money flows. But the amount and the timing are the state's job. Your paycheck to that employee, for the hours they are on leave, is simply zero.
That single fact resolves most of the anxiety. You are not calculating leave pay, and you are not managing a second payroll stream for someone who is not working. What you are doing is a short list of maintenance tasks around the edges.
What you actually still do on payroll
Even though you are not paying leave wages, a few things stay on your plate. None of them are heavy, but skipping them is where employers get into trouble.
Contributions on wages you do pay. The PFML program is funded by a payroll contribution: 0.88% of eligible wages for employers with 25 or more covered individuals, or 0.46% for those with fewer than 25. You withhold the employee's share from their paychecks and remit quarterly through MassTaxConnect. Here is the simple part: you only owe contributions on wages you actually pay. During weeks when you pay nothing, there is nothing to withhold or remit for that person. If you pay top-up wages (more on that below), you withhold on those amounts as normal.
The employee's share of benefit premiums. Health insurance must continue on the same terms during leave, and your employee still owes their usual share of the premium. Collecting that while no paycheck is going out is the trickiest mechanic in the whole process, so it gets its own section below.
Everything else you normally deduct (a 401(k) loan repayment, a garnishment, a voluntary benefit) either pauses with the paycheck or needs a collection plan, exactly like the health premium.
How topping up with PTO works now
This is the rule that changed, and it is worth getting right because employees ask about it constantly.
Since November 2023, Massachusetts lets an employee supplement their state PFML benefit with their own accrued paid time off (vacation, sick, or PTO) to bring their weekly income up to their normal average weekly wage. This is a real shift. Under the old rule, using PTO during PFML reduced the state benefit dollar for dollar, so it rarely made sense. Now the two stack, up to 100% of the employee's average weekly wage.
Here is the mechanic in plain terms:
- The state pays its weekly benefit directly to the employee, unchanged.
- If the employee wants, they can use accrued PTO to cover the gap between that benefit and their normal weekly wage.
- The top-up portion runs through your normal payroll as regular wages: taxed, with the PFML contribution withheld, on your usual pay schedule.
- The combined total cannot exceed the employee's individual average weekly wage. The state calls this the IAWW, and both figures appear on the approval notice.
- You do not report the top-up to DFML, and it does not reduce the state benefit.
The one thing you and the employee must jointly watch is the ceiling. The combined weekly total of the state benefit plus your top-up payment cannot exceed their average weekly wage. The approval notice tells you both numbers; subtract the benefit from the IAWW and that difference is the most you can pay in top-up each week.
| Piece of pay | Who pays it | Runs through your payroll? | Taxable |
|---|---|---|---|
| PFML weekly benefit | The state (DFML) | No | Reported by DFML on a 1099-G |
| PTO top-up to reach normal wage | You (from employee's accrued PTO) | Yes, as regular wages | Yes, like any wages |
| Health insurance (employer share) | You | You keep paying it | N/A |
| Health insurance (employee share) | The employee | You collect it (see below) | N/A |
Collecting the employee's premium share during an unpaid stretch
When there is no paycheck, there is nothing to deduct from, yet the employee still owes their portion of the health premium. You have three clean options. Choose one, put it in writing before leave starts, and apply it the same way for everyone.
- Pay-as-you-go. The employee sends you a check or electronic payment each month for their share. Simplest to track, but it requires them to remember.
- Catch-up on return. You keep coverage active and let the unpaid share build up, then recover it through payroll deductions once they are back and being paid again. Easy for the employee, but agree the repayment schedule up front so a large deduction is not a surprise.
- Deduct from top-up wages. If the employee is topping up with PTO, you can withhold their premium share from those wages, just as you would from a normal paycheck.
Whatever you pick, keep the coverage running the entire time. Letting a policy lapse because premiums were not collected is a serious mistake, and the fix is almost always more expensive than the premium. Document the arrangement, and keep a record of payments received. Sorting out which records to keep is its own small task, and the documents employers should keep during leave guide lays out a practical list.
A quick real-world example
Maria earns $1,500 a week. She starts 12 weeks of bonding leave. The state approves a weekly benefit of about $1,100 and pays it to her directly; you run no payroll for it.
Maria wants to keep her full income, so she elects to top up with accrued PTO. The gap is $400 a week ($1,500 minus $1,100), so you pay her $400 in PTO wages each week through normal payroll, with taxes and the PFML contribution withheld on that $400. Her health insurance stays active; her usual $60 weekly premium share is deducted from that $400 top-up. Everyone's math stays inside her $1,500 average weekly wage.
When Maria's accrued PTO runs out partway through, the top-up simply stops. The state benefit continues, and you switch her premium share to pay-as-you-go for the remaining weeks. Nothing breaks; you just move to the next collection method.
Taxes and year-end paperwork
Because the state pays the benefit, the state handles most of the tax reporting. DFML issues a 1099-G directly to your employee in January for the benefits they received. You do not issue a W-2 for PFML benefits, because they are not wages you paid.
For 2026, the taxability breaks down like this: family leave benefits are fully taxable for federal and state income tax, and for employers with 25 or more employees, 60% of medical leave benefits are taxable (medical leave benefits at employers with fewer than 25 are not taxable). Employees can elect to have income taxes withheld from their benefit when they apply, so you may want to mention that option to them.
One current caveat: the IRS is still finalizing how these programs report. For 2026, DFML confirmed there are no new employer withholding or reporting requirements and no change to your FICA or FUTA responsibilities. Any wages you do pay, like PTO top-up, are reported on the W-2 as usual.
Your payroll checklist for the leave
- Confirm you are not running payroll for the leave itself; the state pays the benefit.
- Decide with the employee whether they will top up with PTO, and by how much.
- If topping up, calculate the gap between the state benefit and their average weekly wage from the approval notice, and never exceed it.
- Run any top-up wages through normal payroll with taxes and the PFML contribution withheld.
- Choose and document a method to collect the employee's health premium share.
- Keep health insurance active on the same terms for the full leave.
- Pause or plan collection for any other normal deductions (loans, garnishments, voluntary benefits).
- Remit PFML contributions quarterly through MassTaxConnect on the wages you actually paid.
- Tell the employee to expect a 1099-G from DFML, not a W-2, for their benefit.
Common mistakes
The first is double-paying. An employer, trying to be generous or just confused, keeps running full payroll while the state also pays the benefit. That pushes the employee past their average weekly wage, creates a tax mess, and is not what topping up allows. Pay only the gap, if anything.
The second is letting health coverage lapse because no premium was deducted. Coverage must continue on the same terms; a missed premium is a collection problem to solve, not a reason to drop the policy.
The third is over-thinking contributions. You only owe PFML contributions on wages you pay. During unpaid weeks, there is nothing to remit for that person. Do not try to contribute on the state benefit; that is not your money and not your obligation.
The fourth is not writing anything down. The premium collection method, the top-up amount, the return-to-work repayment plan: agree them in writing before leave starts. For the fuller picture of what falls to you across the whole leave, the Massachusetts PFML employer responsibilities guide is the companion to this one, and the Massachusetts PFML employer deadlines guide keeps the quarterly and notice clocks straight.
What to hold onto
Payroll during PFML is smaller than it looks. You are not paying leave wages; the state is. Your real work is a short maintenance list: collect the premium share, run any top-up cleanly, keep contributions correct on the wages you do pay, and point the employee to the state for their tax form. Set those up before leave starts and the whole stretch runs quietly in the background.
This guide explains the practical mechanics, not legal or tax advice for your specific situation. Payroll and benefit details vary by plan and by employee, so check anything unusual with your payroll provider or advisor.