Virginia Employment Commission

Richmond, Virginia

Re:  Comment of the National Payroll Reporting Consortium on the Notice of Intended Regulatory Action — Paid Family and Medical Leave Insurance Program

The National Payroll Reporting Consortium (NPRC) appreciates the opportunity to submit comments in response to the Virginia Employment Commission’s (the “Commission”) Notice of Intended Regulatory Action regarding implementation of Virginia’s new Paid Family and Medical Leave (PFML) Insurance Program, established by Chapters 981 and 1093 of the 2026 Acts of Assembly.

NPRC is a non-profit trade association whose members provide payroll processing and employment tax services to more than one and a half million employers, representing well over one-third of the private sector workforce in the United States.

Because our members provide payroll services and file wage and tax reports on behalf of employers across every state, NPRC has a longstanding interest in promoting reporting requirements that are efficient, administrable, and protective of both employer and employee interests.

NPRC members will be responsible for operationalizing much of this program on behalf of Virginia employers — calculating and withholding contributions, remitting funds, filing wage reports, administering private-plan elections, and reflecting the tax treatment of benefits. Our comments therefore focus on areas where the statute affords the Commission regulatory flexibility and where clear, early, and standardized rules will materially reduce implementation cost and error, drawing on our members’ experience implementing similar programs in other states. We respectfully offer the following recommendations.

1.  Private plan coverage periods and election windows aligned to the calendar year

We recommend that the regulations establish private plan coverage periods that coincide with the calendar year, with mandatory minimum election periods of no less than one full calendar year, and that they prevent an employee from participating in both a private plan and the state plan during the same calendar year. In several states, rules permitting mid-year or quarterly transitions between the state plan and private plans have produced significant administrative difficulty: employers and their payroll providers must operate dual contribution regimes within a single year, reconcile split premium remittances, restart wage bases mid-year, and issue corrected or duplicative reporting. Aligning coverage and election periods to the calendar year — which is also the federal tax year and the natural boundary for wage reporting and Form W-2 preparation — avoids these problems, simplifies reconciliation, and reduces the risk of premium gaps or double-collection. A minimum one-year commitment also promotes actuarial stability and discourages adverse selection.

2.  Early implementation of the private plan approval workflow

We recommend that the Commission stand up its private plan application, review, and approval process — including forms, plan standards, any security or solvency requirements, and the submission portal — well in advance of the April 1, 2028 contribution start date, so that employers with qualifying private plans may obtain approval effective as of the first date contributions would otherwise be due. In other states, private-plan approval mechanisms became available only shortly before, or in some cases after, contributions began. As a result, employers who intended to satisfy their obligations through a private plan were nonetheless required to enroll in and remit to the state program on an interim basis, then seek refunds or transfers once their private plan was approved — reintroducing precisely the split-year, dual-participation complications described above. Publishing private-plan standards and opening the approval workflow early, ideally well ahead of the October 1, 2027 initial rate determination, would allow employers and their payroll providers to configure systems correctly before go-live and to elect private-plan coverage from day one.

3.  A clear definition of covered employment and of wages subject to premium

We recommend that the regulations specifically define the wages and forms of compensation that are subject to PFML premiums and those that are excluded. Payroll systems must be programmed to a precise wage base, and ambiguity on this point is among the largest drivers of implementation cost and reporting error. In particular, we ask that the rules address the treatment of tips and gratuities, commissions and bonuses, severance and other separation pay, equity and other non-cash compensation, elective deferrals and pre-tax contributions (such as Section 125 cafeteria-plan and Section 401(k) amounts), third-party sick pay, and imputed income such as group-term life insurance, and that the rules confirm, consistent with the statute, that PFML contributions are calculated only on wages up to the Social Security wage base. To the fullest extent the statute permits, we encourage the Commission to conform the PFML wage definition to the one already used for Virginia unemployment insurance purposes. Because the Commission administers both programs, aligning the two definitions would allow employers and providers to rely on the subject-wage definition they already apply for unemployment insurance rather than build and maintain a separate calculation, materially reducing burden and error.

Relatedly, we ask that the regulations provide a clear definition of the employees and the employment covered by the program. Employers and providers would benefit in particular from knowing whether covered employment is intended to mirror the definition used for Virginia unemployment insurance (SUI). If the two are not aligned, the regulations should identify the categories of workers who may be subject to PFML but not to SUI, or the reverse, because any divergence requires employers and providers to maintain a separate population of covered workers and a separate eligibility determination, adding materially to implementation complexity and to the risk of error.  With respect to employees who perform services in multiple states, we encourage the department to consider using the same localization test as used for unemployment insurance if not already defined under the statute.

4.  Flexibility for employers to catch up employee contributions when net pay is insufficient

We recommend that the regulations expressly permit an employer to recover, in a subsequent pay period within the same calendar quarter, the employee share of the premium that could not be withheld from a given paycheck because of insufficient net pay. This situation arises most acutely for tipped employees, whose direct cash wages may be small relative to the total (tip-inclusive) wages on which premiums are assessed, and also for employees with substantial pre-tax deductions or wage garnishments. Absent an authorized catch-up mechanism, an employer faced with insufficient net pay must either advance the employee’s premium with no clear means of recoupment or under-withhold and fall out of compliance. A clear rule permitting later-period catch-up — together with guidance on its interaction with minimum-wage and permissible-deduction limits — would resolve this recurring problem and is consistent with the approach taken in other states.

We ask, in particular, that the regulations address the interaction with minimum-wage limits. No deduction may cause an employee’s wages, after the deduction, to fall below the minimum wage required to be paid to the employee by any applicable statute, regulation, rule, or ordinance. Where withholding the full employee premium would breach that floor, the regulations should specify the employer’s correct course of action — for example, whether the employer should carry the uncollected amount forward to a future pay period within the quarter, or instead treat the uncollected premium as an employer-paid (“pick-up”) contribution.

That choice carries tax consequences the regulations should make clear. Where an employer does not recoup a missed employee premium from subsequent pay, the unpaid employee contribution may be treated as an employer-paid, or “pick-up,” contribution. Under IRS Revenue Ruling 2025-4, an employer’s payment of an employee’s required contribution is treated as additional taxable wages to the employee and must be reported on Form W-2, creating additional payroll reporting and withholding obligations that the employer must administer. Unclear or unduly restrictive correction procedures would therefore expose employers to avoidable administrative complexity and compliance risk, and we encourage the Commission to provide a workable and explicit correction path.

5.  Wage reporting and contribution deadlines aligned to existing unemployment insurance due dates

We recommend that PFML wage reporting and contribution remittance deadlines be set to coincide with the existing Virginia unemployment insurance quarterly due dates — the last day of the month following the close of each calendar quarter (April 30, July 31, October 31, and January 31) — and that, to the extent practicable, PFML reporting use the same filing cadence, file formats, and employer account identifiers as the existing quarterly UI wage report. Employers and payroll providers already prepare and transmit quarterly UI wage reports on this schedule. A separate PFML filing calendar would create avoidable exposure to late-filing penalties where a provider’s single quarterly process would otherwise suffice. Co-administration with the unemployment insurance system is a structural strength of Virginia’s program; aligning deadlines and formats realizes that efficiency for employers and the Commission alike.

At the same time, we ask the Commission to consider carefully the effect of combined PFML and unemployment reporting, should a single combined report be contemplated. When reports are combined, the integrity of each program can be adversely affected: a wage report or payment may be rejected for one program because of a data error affecting only the companion program, exposing the employer to penalties for information that would have been accepted had the two reports been administered separately.

We also ask the regulations to clarify the reporting obligations of employers with approved private plans — specifically, whether private-plan employers will be subject to the same quarterly wage-reporting requirements as state-plan employers. Employers and providers need to know, well before go-live, whether a private-plan election eliminates, reduces, or preserves the quarterly reporting obligation, so that systems and processes can be configured accordingly.

Finally, as the Commission develops the report specifications, we offer two practical suggestions. First, employer size is better captured through an employer’s online attestation than as a field on each quarterly report, which avoids repeated and potentially inconsistent reporting of a relatively static attribute. Second, if wages and hours are to be included on the quarterly report, we ask that the specifications state precisely which wages and which hours must, and must not, be reported, so that providers can program a single, unambiguous rule.

6.  Pay statement itemization and Form W-2 reporting of premiums

We recommend that the regulations address how PFML premiums are to be reflected on employee pay statements and on Form W-2, so that employers and providers can program consistent, compliant wage statements from the outset. On the pay statement, we ask the Commission to specify whether, and how, the employee-paid PFML premium must be itemized as a separate deduction. For year-end reporting, we ask the regulations to confirm the Form W-2 treatment of both the employee premium and any employer “pick-up” of the employee’s required contribution. Under IRS Revenue Ruling 2025-4, the employee’s own required contribution is included in the employee’s Form W-2 wages, and an employer’s voluntary payment of the employee’s required contribution is likewise treated as additional taxable wages reportable on Form W-2. Confirming these points — including any Box 14 or comparable reporting the Commission expects — would allow providers to configure pay statements and Forms W-2 correctly and consistently across all Virginia employers.

7.  Clear guidance on the taxability of benefits, reflecting federal treatment

We further recommend that the regulations, in coordination with the Department of Taxation as appropriate, provide clear guidance on the tax treatment of PFML benefits — an area that payroll providers must reflect in withholding, wage statements, and information returns, and that current federal guidance addresses only in part. Specifically, we ask that the Commission clarify: (a) whether PFML benefits are subject to Virginia individual income tax and, if so, whether Virginia income tax will be withheld from benefits or a withholding election offered to claimants; (b) whether benefits, or any portion of contributions, are treated as “wages” subject to Virginia unemployment insurance contributions; and (c) the information-reporting mechanism the Commonwealth will use to report benefits to recipients and to Virginia Tax.

We further recommend that Virginia’s treatment be expressly reconciled with the federal framework so that state and federal reporting are consistent. Under IRS Revenue Ruling 2025-4, family-leave benefits are includible in the recipient’s federal gross income but are not wages for federal employment-tax purposes; medical-leave benefits attributable to the employee’s own contributions are excluded from income, while the portion attributable to employer contributions is includible and treated as third-party sick pay subject to FICA. Because that characterization turns on the source of the contributions funding a given benefit, we encourage the Commission to design its contribution accounting and recordkeeping so that the fund can track and report the employer-versus-employee contribution attribution necessary to characterize benefits correctly at year end. We note as well that the federal transition relief under Revenue Ruling 2025-4, as extended through calendar year 2026 by Notice 2026-6, will have expired before Virginia begins paying benefits on December 1, 2028; Virginia therefore has the advantage — not shared by the earliest-adopting states — of building fully compliant benefit-side reporting and withholding from the program’s first benefit payment, rather than retrofitting it later. Finally, because the federal guidance does not address benefits paid under approved private plans, we ask that the regulations speak to the reporting and taxability of private-plan benefits as well, so that employers and providers administering private plans have parallel clarity.

8.  Clarification on how the program applies to Employer who Contract with Professional Employer Organizations (PEOs)

NPRC appreciates that SB 2 recognizes professional employer organization (PEO) relationships and provides important clarity regarding the treatment of client employers under the program. As the Commonwealth develops implementing regulations, NPRC encourages consideration of several additional clarifications based on lessons learned from other state paid leave programs and the unique administrative structure of PEO arrangements. Specifically, the regulations should clarify that, for purposes of determining employer size and applicable contribution requirements, employee counts are measured at the client company level rather than the PEO level; that a private paid family and medical leave plan sponsored or provided through a PEO may qualify as an approved private plan if it otherwise satisfies statutory requirements; that required contributions may be remitted by a PEO on behalf of its client companies; and that PEOs and client companies may enter into agreements under which the PEO assists with some or all of the client company’s administrative, reporting, and compliance responsibilities under the program. These clarifications would provide certainty to employers, employees, insurers, regulators, and service providers, promote efficient program administration, and align implementation with established employment and benefits administration practices.

An offer of assistance

NPRC and its members have collaborated with a number of other states in the design and implementation of their paid family and medical leave programs, and we would welcome the opportunity to serve as a resource to the Commission as it develops these regulations. We are glad to share operational detail, file-format and reconciliation experience, and lessons learned from other jurisdictions, and we extend an open invitation to the Commission to contact the undersigned at any time, with any questions, and at any stage of this rulemaking.

NPRC appreciates the opportunity to comment and looks forward to the continued development of Virginia’s program. Thank you for your consideration of the recommendations above, and please do not hesitate to contact us with any questions or to arrange a follow-up discussion.

Sincerely,

Kurt Shoemaker

Policy Director, National Payroll Reporting Consortium

kshoemaker@paylocity.com 603-689-5613

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