On March 18, the President signed the Families First Coronavirus Response Act (FFCRA). The signed bill scaled back the version of the law that passed the House on March 14.
The FFCRA will become effective on April 1, according to guidance issued on March 24 by the U.S. Department of Labor (DOL). The FFCRA contains a number of major provisions concerning paid leave, job protection and tax implications that will affect employers nationwide. The FFCRA “sunsets” on December 31.
Importantly, the FFCRA only applies to employers with fewer than 500 employees. The threshold for coverage is tied to the Fair Labor Standards Act, which means that all but the smallest employers with 500 or fewer employees will be covered. Tax credits are available to help employers defray the costs for paid sick leave, and employers with less than 50 employees may apply for an exemption. The DOL’s guidance, FAQ’s and Factsheets will help employers better understand if they are covered by the FFCRA.
Overview of the Important Points for Employers
Changes to FMLA to Include Paid Leave When Child’s School or Child Care Provider is Closed FMLA Protections. The bill expands FMLA and provides paid leave for “Qualifying need related to a public health emergency.”
- Covered Employers. This law covers employers with fewer than 500 employees. According to the recently released DOL guidance, the headcount is taken at the time the employee’s leave is to be taken. Employers should include employees on leave, temporary employees (if the employer is a joint employer with another entity), and day laborers supplied by a temporary agency. Independent contractors are not part of the headcount for the 500-employee threshold.
- Joint employers may aggregate common employees to reach the 500-employee threshold. Entities will be considered joint employers if (as to common employees) the same group of people (1) hires or fires the employees; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records. See the most recent joint employer guidance from the DOL. Entities will be considered a single integrated enterprise if there is (a) common management, (b) interrelation between operations, (c) centralized control of labor relations, and (d) degree of common ownership or financial control.
- Reduced Threshold for Eligible Employees. Employees are eligible to receive leave from an employer if they have been employed by that employer for at least 30 calendar days. This is lower than the general FMLA threshold of 12 months and 1250 hours worked.
- Qualifying Need Related to a Public Health Emergency Defined. Eligible employees will have the right to take up to 12 weeks of FMLA to care for a child under 18 years old if the child’s school or place of care has been closed, or the paid childcare provider is unavailable due to a public health emergency; provided thatthe employee is unable to work or telework.
- Job Protection. FMLA job protections still apply, but employers with less than 25 employees do not have to return the employee to the previous position if that position no longer exists, but employers must make reasonable efforts to place the employee into an equivalent position.
Paid FMLA Leave.
- Limited to certain circumstances. Paid leave only applies to “qualifying needs related to a public health emergency.” Other FMLA leave remains unpaid.
- First 10 days. The first 10 days of leave may be unpaid but employees can choose to use accrued paid leave.
- Subsequent Leave Paid at Two-Thirds of the Regular Rate. The leave must be paid at no less than two-thirds of the employee’s regular rate of pay (note that this may be greater than an employee’s hourlyrate, see the Department of Labor’s regular rate guidance for more information). The daily rate of paid leave cannot exceed $200, and aggregate leave shall not exceed $10,000.
- Calculating Number of Hours. Generally, employers must use the number of hours the employee would otherwise be normally scheduled to work. Special rules apply, however, for employees with varying schedules.
- Mandatory Substitution Prohibited. Employers cannot require employees to use other paid leave in lieu of leave granted under the FFCRA.
Exemptions. The U.S. Department of Labor will develop rules exempting certain healthcare providers and emergency responders from taking leave under the bill. Rules will also exempt businesses with fewer than 50 employees from the requirements of the bill if it jeopardizes the viability of the business.
Federal Paid Sick Leave (PSL)
Qualified PSL Reasons. Employers with fewer than 500 employees must provide all employees with PSL when an employee is unable to work (or telework) due to a need for leave because of the following six reasons:
- The employee is subject to a Federal, State or local quarantine or isolate order related to COVID-19;
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
- The employee is caring for an individual who is subject to an order as described in reason 1 (above) or has been advised as described in reason 2 (above);
- The employee is caring for their child if the school or childcare has been closed, or the childcare provider is unavailable, due to COVID-19; or
- The employee is experiencing any other substantially similar COVID-19 condition as specified in rules from the Department of Health and Human Services.
Amount of PSL. Full-time employees are entitled to up to 80 hours of PSL. For part-time employees, they are entitled to a pro-rata share of hours worked, on average, over a two-week period.
PSL Payments. PSL will be paid at the regular rate of pay for reasons 1, 2 or 3 (above). PSL for reasons 4, 5 or 6 (above) will be paid at two-thirds the regular rate of pay.
Daily PSL Payments and Caps. Employers provide PSL based on the number of hours the employee would otherwise be normally scheduled to work. However, the FCCRA sets caps of $511 per day (and $5110 maximum) for PSL taken for reasons 1, 2 or 3 (above), and $200 per day (and $2000) maximum for PSL taken for reasons 4, 5 or 6 (above).
No carryover. There is no carryover of PSL from one year to the next.
Eligibility. Paid sick leave under FFCRA shall be provided regardless of how long the employee has been employed.
Interaction with Existing Paid Leave Benefits. Employers may not require an employee to use any other type of paid leave before the employee uses PSL under the FFCRA. Thus, employees are entitled to use PSL under the FFCRA prior to using any employer-provided vacation, PTO or paid sick leave under state or local law.
Employer Notice. Employers are obligated to post a PSL notice to employees, and by March 25, the DOL will provide a model notice.
Multi-Employer CBAs. Employees covered by a multi-employer collective bargaining agreements who receive paid leave benefits from a trust arrangement are entitled to receive leave benefits commensurate with the above requirements.
DOL Rules. The DOL will issue PSL guidelines to assist employers by April 2.
Non-Discrimination, Non-Retaliation
It shall be unlawful for any employer to discharge, discipline or, in another manner discriminate against any employees because they have taken leave provided under FFCRA, or filed any complaint, instituted any proceeding, or testified or is about to testify in any proceeding relating to FFCRA.
Remedies for Violations
Employers are liable for unpaid benefits, liquidated damages of 100 percent, injunctive relief, fines of up to $10,000 along with criminal penalties and attorney’s fees for a violation of the FFCRA.
Unemployment Compensation, Coverage for COVID-19 Testing
FFCRA provides for increased funding for state unemployment programs and requires a waiver of co-pays for COVID-19 testing by health care plans and insurers.
Tax Considerations
Employers required to pay workers can offset some of the financial impact through refundable employment tax credits. The tax credit equals 100 percent of qualified sick leave and qualified paid FMLA paid by employers. A credit would also be available for self-employed taxpayers.
Credits for both qualified sick leave and qualified family leave wages are subject to caps. The credit for qualified sick leave is limited to $511 per day for employees when an employee is taking care of themselves or $200 per day for employees caring for a family member – both with an aggregate cap of 10 days. This effectively caps the qualified sick leave credit between $2,000 and $5,110 per employee. The credit for qualified FMLA wages is limited to $200 per day and $10,000 aggregate for any employee. The FFCRA would prevent double benefits by increasing an employer’s gross income by the amount of credits received (i.e., the payroll credit is offset by an equal income item which results in a net-zero effect on taxable income, though of course the credit is more valuable than the income tax deduction). It would also prevent a credit for wages where a credit is allowed under section 45S (employer credit for paid family and medical leave).
The FFCRA leaves out many details. These may be covered through future regulations issued by the Internal Revenue Service. One important detail is what happens when businesses lack cash to pay employees for payments subject to the refundable credit. According to the Wall Street Journal, “Treasury Secretary Steven Mnuchin has said the government is prepared to advance the funds to businesses that can’t cover the costs now.” The budgetary impacts of the FFCRA would not impact budget limitations imposed by pay-as-you-go requirements.
HR Considerations
Covered employers should strongly consider implementing COVID-19 policies, which should include a discussion about the interaction with state and local paid sick leave laws. Many states, including
Businesses should also consider the impact of PSL on businesses that close due to lack of work or because of a state or local order to close non-essential businesses. There is no question that businesses and employees are facing a significant impact because many people are self-isolating or quarantined. As written, the FCCRA does not cover employees who are sent home by their employers due to a COVID-19 related decrease in business. But it may cover employees who are sent home due to a “shelter-in-place” or related order public health order. Again, we recommend working with counsel to discuss your businesses’ individual circumstances.
Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave.
IRS Statements and Announcements
IR-2020-57, March 20, 2020
The U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020.
The Act will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.
Key Takeaways
Paid Sick Leave for Workers
For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable.
Complete Coverage
Employers receive 100% reimbursement for paid leave pursuant to the Act.
- Health insurance costs are also included in the credit.
- Employers face no payroll tax liability.
- Self-employed individuals receive an equivalent credit.
Fast Funds
Reimbursement will be quick and easy to obtain.
- An immediate dollar-for-dollar tax offset against payroll taxes will be provided
- Where a refund is owed, the IRS will send the refund as quickly as possible.
Small Business Protection
Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened.
Easing Compliance
- Requirements subject to 30-day non-enforcement period for good faith compliance efforts.
To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.
Background
The Act provided paid sick leave and expanded family and medical leave for COVID-19 related reasons and created the refundable paid sick leave credit and the paid child care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and December 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.
Paid Leave
The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee’s pay.
Paid Sick Leave Credit
For an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
For an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Child Care Leave Credit
In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Prompt Payment for the Cost of Providing Leave
When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.
Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.
The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.
Examples
- If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
- If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
- Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.
Small Business Exemption
Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. Labor will provide emergency guidance and rulemaking to clearly articulate this standard.
Non-Enforcement Period
Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the 30-day period.
For More Information
For more information about these credits and other relief, visit Coronavirus Tax Relief on IRS.gov.
