How the New Payroll Tax and Paid Leave Program Will Affect Maine’s Small Businesses

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Maine businesses are gearing up for significant changes as the state rolls out a new payroll tax and paid family and medical leave program. Governor Janet Mills signed the legislation into law over the summer, allocating $25 million to the Maine Department of Labor (MDOL) to manage the program. Starting in 2026, Maine workers will be eligible for up to 12 weeks of paid leave, but businesses will begin contributing a 1% payroll tax starting January 1, 2025.

Paid Leave Benefits and Business Concerns

Beginning in spring 2026, employees can take paid leave for reasons like caring for a sick family member or bonding with a newborn. However, the earlier start of payroll contributions has caused concern among employers. Many businesses are uncertain about the complex regulations still being developed by MDOL, with employers and employees splitting the 1% payroll tax.

"Undue Hardship" and Private Plan Options

One key issue is the "undue hardship" rule, which allows businesses to deny leave if it would harm operations. Initially, employers had to prove hardship to MDOL, but recent revisions give employers more control over these decisions. Amanda Johnson of Somic America expressed concerns over the burden of proof, saying it could divert resources from core business activities.

Businesses also have the option to offer private leave plans, with the MDOL shortening the mandatory contribution period from 16 months to four, easing financial strain on companies opting for private plans.

Remaining Challenges

Despite changes to the rules, business leaders like Maine State Chamber of Commerce President Patrick Woodcock remain concerned. Woodcock warns that many businesses may not fully grasp the impact of these policies. He also highlighted concerns over the potential for fraud and the rapid implementation timeline, which may prove challenging for Maine’s small businesses.

Final Thoughts

Maine’s paid family and medical leave program offers vital benefits for workers, but its rollout presents challenges for employers. As the 2025 payroll tax approaches, businesses will need to adapt to the new regulations while addressing concerns about costs and workforce management.

Attribution source: Themainewire.com