On March 18, 2020, the Families First Coronavirus Response Act was signed into law and will become effective not later than 15 days later, April 1, 2020(FN1). There are some differences between what was ultimately passed and what was summarized in our early article from March 16, 2020.
In particular, the Act still provides two weeks (80 hours) of paid sick leave, but caps the amount of paid leave required to be provided by covered employers and provides for full reimbursement of both pay and employer paid health insurance premiums through available payroll tax credits. The original bill provided for pay at the employee’s regular rate, but capped the tax credit which would not have sufficiently offset the costs to the employer.
In addition, the FMLA leave expansion under the law that was passed is more narrow than originally proposed and now only includes leave for child care if a school/care facility is closed (but still applies to employers from 1-499), and is paid (after the initial 2 weeks) at 2/3 pay up to $200 per day and not to exceed $10,000 in the aggregate. Of course, if the employee sick with COVID-19 or has to care for a close family member sick with COVID-19, they may still qualify for existing FMLA leave depending upon the severity (and if the employer has at least 50 employees), it just would not have to be paid time off.
This summary provides highlights of the pertinent provisions for employers. Our team is working on preparing policies to comply with these new legal requirements and remain available to assist our clients in navigating this epidemic.
Emergency Paid Sick Leave
Employers with less than 500 employees are required to provide two weeks of paid sick leave for employees who are unable to work (or telework) and must take leave to:
- self-quarantine based upon the advice of a health provider, quarantine pursuant to a government order, seek a diagnosis or preventive care, or receive treatment, for COVID-19; payable at the employee’s regular rate of pay, up to $511 per day.
- care for a family member subject to advice or order of quarantine, or to care for a child whose school or care facility has closed or is unavailable due to COVID-19; payable at a rate equal to two-thirds of the employee’s regular rate of pay, up to $200 per day.
- take leave for other substantially similar conditions (specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor); payable at a rate equal to two-thirds of the employee’s regular rate of pay, up to $200 per day.
The two-week emergency paid sick leave is in addition to any otherwise available sick leave and is available for all employees, regardless of how long the employee has worked for the employer. There is also no distinction based upon employment classification; part-time and full-time, non-exempt and exempt employees are covered.
Employees may choose whether to use this new Emergency Sick Leave prior to using other available leave and employers are prohibited from requiring that they use other leave first. Employers will also be required to post a notice to employees regarding the availability of this leave (the Department of Labor is tasked with developing a model notice).
There are also anti-discrimination/retaliation protections for employees utilizing Emergency Sick Leave and employers failing to provide the required Emergency Sick Leave shall be considered a violation of the minimum wage requirements of the FLSA.
If an employee is terminated or otherwise separates from employment, they are not entitled to any pay in lieu of taking Emergency Sick Leave. The Emergency Sick Leave expires on December 31, 2020.
Notably, Congress also removed a prior provision that would have prohibited employers from changing paid time off policies in response to the Act.
Extending FMLA Leave to Employees Needing to Care for a Child due to COVID-19 Closures.
The Act still contains provisions that amend the FMLA to provide up to twelve-weeks of job-protected leave to employees for qualifying reasons related to COVID-19, but is substantially reduced from the version passed by the House on March 14 and summarized in our prior article.
Effective April 1 through December 31, 2020, employers with less than 500 employees must provide leave and partial pay to employees with a “qualifying need related to a public health emergency.” The only covered absences are if an employee is unable to work (or telework) due to a need for leave to care for the employee’s child (under 18 years of age) if the school or place of care has been closed, or the child’s care provider is unavailable, due to a public health emergency related to COVID-19 declared by a Federal, State, or local authority.
Employees are eligible if they have been employed for at least 30 days. The first 10 days of leave may be provided without pay, but thereafter, employees must be paid two-thirds the employee’s regular rate of pay, up to $200 per day and $10,000 in the aggregate.
Health care providers and emergency responders may be excluded from the expanded FMLA leave rights at the election of their employer.
Although employees on FMLA-protected leave are entitled to job-restoration benefits, for employers with fewer then twenty-five employees, job restoration is not required for this expanded FMLA leave so long as the position held no longer exists due to economic conditions or changes in operating conditions; and the employer makes reasonable efforts to restore the person to an equivalent position; and the employer makes reasonable efforts to contact the employee if an equivalent position becomes available within a 1 year (as defined in the Act).
Under the Act, the Secretary of Labor has the authority to issue regulations for “good cause” to exempt “certain health care providers and emergency responders” from the definition of eligible employee and also to exempt small businesses with fewer than 50 employees “when the imposition of such requirements would jeopardize the viability of the business as a going concern.”
Tax Credits to Offset Paid Sick Leave and Extended FMLA Leave
Under the Act, employers will be eligible for a refundable tax credit to offset qualified sick leave wages, qualified family leave wages, and qualified health plan expenses actually paid pursuant to the Act. Qualified wages are the wages and compensation paid by an employer which is required to be paid under the Act. Qualified health plan expenses include amounts paid or incurred by the employer in a group health plan provided to employees to the extent such amounts are excluded from the gross income of the qualified employees (e.g., employer-paid health insurance premiums). Thus employers will be eligible for a payroll credit for both the cost associated with the wages paid and also insurance benefits provided to employees under the Act.
Employers will initially pay the qualified employees the paid sick and family leave benefits and will pay for any qualified health plan expenses, but will be reimbursed for such amounts (with certain limitations further described below) by the federal government in connection with the employer filing its quarterly federal employment tax return (e.g., Form 941) with the Internal Revenue Service. Although the Act is unclear as to the procedures and timing of the reimbursement, it is anticipated that it would generally happen within three months of the employer’s payment of the qualified wages and health plan expenses.
Amount of Tax Credit for Employers
In general, the Act provides for a refundable tax credit equal to 100 percent of the qualified sick leave wages paid by the employer, as determined on a daily basis for up to 10 working days per qualified employee, and is capped per day per qualified employee, based on the amount paid or the maximum amounts explained above, whichever is less.
Thus, employers will receive a tax credit per day equal to the lesser of: (a) $511 per employee, or (b) 100 percent of the qualified sick leave wages paid to the employee related to the employee’s own COVID-19 sickness, treatment, diagnosis, or quarantine. Employers will receive a tax credit per day equal to the lesser of: (a) $200 per employee, or (b) 100 percent of the qualified family leave wages paid to the employee for leaves to care for others who are sick, quarantined, or without childcare/school because of COVID-19.
The Act further provides that the refundable tax credit is increased by the amount of an employer’s qualified health plan expenses. Although not in the earlier version of the law, the inclusion of this additional credit means, employer-paid health expenses for qualified employees will also be refundable through the employer’s tax credit. Although the Act is unclear on the exact process for this credit, it is anticipated that the qualified health plan expenses would similarly be refunded in connection with the employer’s quarterly federal employment tax return.
Tax Credits for Self-Employed Individuals
The Act retained tax credits for eligible self-employed individuals who are covered by the sick or family leave requirements (e.g., individual owners of a single member LLC, individual partners of a partnership, etc.). However, self-employed individuals do not file quarterly employment tax returns with the IRS, but rather make quarterly estimated tax payments encompassing both estimated income tax and self-employment tax that are ultimately reconciled against tax liability owed on the self-employed individual’s individual income tax return (e.g., Form 1040). Thus, while the Act is unclear how the refundable tax credit for an eligible self-employed individual will ultimately be refunded to the taxpayer, it appears the refund would be in conjunction with the filing of the individual’s individual tax return for the 2020 tax year that will occur in 2021.
FN1 – Although our initial article stated April 2, the Department of Labor issued guidance on March 24, 2020, stating that the Act is effective April 1, 2020.