Comptroller Fiscal Year Memo Letter Head


To:Chief Fiscal Officers, MMARS Liaisons, Payroll Directors
From:Martin J. Benison, Comptroller
Date:March 5, 2008
Re:FY2009 Fringe Benefit and Payroll Tax RatesComptroller Memo

Executive Summary

The purpose of this memo is to advise departments of the fringe benefit and payroll tax rates proposed for FY2009.

The FY2009 fringe benefit rate proposal has been calculated at 24.50% of regular compensation (salaries expended under object codes A01, A07 and A09). Additionally, the FY2009 payroll tax rate has been calculated at 1.30% of gross compensation for regular and contractual employees (salaries expended under AA and CC object codes). These rate proposals are being submitted to the U.S. Department of Health and Human Services for approval.

Although there is no guarantee that the Federal review agency will approve the rate as proposed, the calculation of these rates is consistent with the federally approved methodology used in prior years.

Why did the rate decline?

The significant decrease in the FY2009 rates from the FY2008 rates of 38.32% and 1.33%, respectively, is primarily due to the proposed decrease in OPEB funding in FY2009 reflected in House 2 under the GIC rate component. In addition, a variance between 2007 estimated and actual costs for GIC led to a large adjustment that decreased the rate significantly. There is a strong likelihood that the rate will increase when the Commonwealth begins funding OPEB . In addition, the adjustment between estimated and actual costs for GIC that occurred in FY2007 will only be reflected in FY2009 and not future years.

The fringe benefit rate will be used to assess the state's share of fringe benefit costs - health insurance, pension liabilities and terminal leave salaries - on all Federal grant and other non-budgetary accounts. The payroll tax rate will assess Unemployment Insurance, Universal Health Insurance and the employer's share of the Medicare tax to all budgetary and non-budgetary accounts incurring AA and CC salaries. Both rates will take effect beginning with Period 01, BFY2009 (July, 2008).

The assessment of fringe benefits on Federal funds is mandated by section 6B of Chapter 29 of the Massachusetts General Laws. Section 5D of the same law extends that assessment to all other funds of the Commonwealth except the General Fund. The Executive Office of Administration and Finance has promulgated regulations regarding fringe benefits under Administrative Bulletin No. 5, dated May 13, 1996, entitled "Recovery of Fringe Benefits and Indirect Costs".

The assessment of payroll taxes is mandated by M.G.L. Chapter 151A, sections 14C and 14G for unemployment and universal health insurance, and M.G.L. Chapter 7A, sections 3, 7, and 8 for the Medicare tax.

We will notify you of any adjustments due to legislative activity and once final approval is received from the Federal government.

Questions regarding this memo may be directed to Fred DeMinico at (617) 973-2625.

Enc: Proposed FY2009 Fringe Benefit Rate xls format of 2009_01_rate_summary.xls

CC:MMARS Liaisons
Payroll Directors
General Counsels
Internal Distribution