On March 5, 2026, the Governor signed Washington’s Second Substitute House Bill 2345 (2SHB 2345), which updated how Paid Family and Medical Leave (PFML) premiums are allocated between the family and medical shares, without changing the total premium or the overall employee‑versus‑employer split.

This update applies to all Washington employers with employees employed in Washington (including small employers and voluntary plans) and is effective June 11, 2026.

What Employers Need to Do

• Adjust Payroll Deduction Logic: Configure PFML withholding to allow up to the full employee share for the medical premium and apply the statute’s formula cap for the family premium. Coordinate this change with the next rate cycle update.

• Keep Total PFML Processes Unchanged: The total premium rate and overall employee versus employer split are unaffected by HB 2345; only the distribution between family and medical shares changes.

• Confirm Small Employer Status Annually: Employers with fewer than 50 employees in Washington are not required to pay the employer portion but must still collect and remit the employee portion. The Washington State Employment Security Department (ESD) determines employer size each year using a September 30 snapshot averaged over the prior four quarters.

• Plan for the Annual PFML Rate Cycle: The ESD recalculates the total premium around October 20 for the following January 1 implementation, using the statutory formula and three-month reserve target with a 1.20% cap. Align the payroll change window with that cadence.

• Coordinate Tax Treatment: Work with payroll and tax advisors to ensure FICA reporting aligns with the reallocation that prompted HB 2345 (ESD indicates the change responds to federal tax guidance and will issue implementation details).

Overview

• What Changed: HB 2345 reallocates contributions between the medical and family premium shares to align with federal tax guidance. It does not change the total PFML premium rate or how that total is split between employees and employers.

• Medical Leave Premiums (Employee Deductions): An employer may deduct up to the full amount of the employee share of the medical premium from wages.

• Family Leave Premiums (Employee Deductions): An employer may deduct from wages up to the difference between (i) the full family premium plus 45% of the full medical premium and (ii) the full medical premium (the exact statutory formula).

• Employer Election to Cover More: Employers may pay all or part of the employee share for family or medical premiums.

• Small Employer Rule Unchanged: Employers with fewer than 50 Washington employees are not required to pay the employer portion of premiums.

• Annual Rate Setting Continues: The total premium continues to be set each year under RCW 50A.10.030 (October calculation; three-month reserve; 1.20% maximum).

Why this matters

• Payroll Accuracy and Compliance: The new legal caps and allowances change how much you may deduct from employee wages for each premium type and, therefore, require system updates and communications.

• Tax Alignment: The Legislature designed the reallocation to respond to federal guidance, so PFML funding aligns with IRS treatment, reducing potential federal employment tax friction for employers and workers. The ESD has acknowledged this intent and will publish guidance.

• No Change to Total Cost Mechanics: The overall PFML premium and the employee versus employer total split remain as set by statute, and the annual ESD formula, so budgets tied to total PFML costs should not shift due to HB 2345 alone.

Key Risks for Employers

• Incorrect Deductions: Over-withholding on family premiums or under-withholding on medical premiums by ignoring the new statutory allowances and formula.

• Missed Sizing Determination: Failing to verify the fewer than 50 status based on ESD’s September 30 headcount methodology, leading to wrong employer contributions.

• Rate Cycle Timing Errors: Reconfiguring mid-cycle without aligning to ESD’s October recalculation and January 1 adoption can create reconciliation issues.

• Tax Reporting Mismatches: Not coordinating with payroll tax advisors to reflect the medical vs. family reallocation in FICA treatment when ESD guidance arrives.

Additional information

• PFML Wage Base and Sizing Reminders: Premiums apply up to the Social Security wage cap; the ESD sets the cap each year and sizes employers on September 30 by averaging the last day of quarter headcounts over four quarters.

• ESD Implementation Notes: The ESD’s March 2026 update confirms the law responds to IRS guidance, preserves total contributions, and that employer implementation guidance will follow ahead of the next rate split announcement.

Source Reference

• Washington HB 2345 – Concerning contributions in the state paid family and medical leave program

Resources

• Washington – WAC 192-510-050
• Washington PFML Employer Hub – Here for your business

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