Families First Coronavirus Response Act
On March 18, 2020, the Families First Coronavirus Response Act (the “FFCRA”) was enacted in response to the COVID-19 outbreak. Two of the FFCRA’s provisions significantly affect employer’s obligations with regard to paid leave and FMLA leave and one will provide tax credits to help employers with the new obligations.
The FFCRA imposes significant obligations on small and medium size employers. We would be happy to discuss them with you if you would like our assistance in understanding them.
The key subsections of the FFCRA are the Emergency Family and Medical Leave Expansion Act (“EFMLEA”) and the Emergency Paid Sick Leave Act (“EPSLA”) . Both apply to small and medium sized employers having fewer than 500 employees. The FFCRA also provides some tax credits to assist employers with the cost of meeting the requirements of EFMLEA and EPSLA and excludes wages paid under the FFCRA from wages for OASDI portion of FICA calculations.
Emergency Family and Medical Leave Expansion Act (“EFMLEA”)
The Emergency Family and Medical Leave Expansion Act (“EFMLEA”) amends the Family and Medical Leave Act.
Employers with fewer than 500 employees now must allow employees who have been employed for at least 30 calendar days and who cannot work or telework to take up to 12 weeks of leave pursuant to a “qualifying need” related to a public emergency because the employee must care for the employee’s child under the age of 18 when the child’s school is closed or childcare provider is unavailable due to a public health emergency. EFMLEA affects all small and medium size businesses since it applies to those that have fewer than 500 employees. This section applies to employers who would not normally be subject to the FMLA however, DOL has the authority to issue regulations to exempt small businesses (less than 50 employees) when the imposition of EFMLA would jeopardize the viability of the business as a going concern, and certain health care providers and emergency responders..
If an employee elects to take leave under EFMLEA, the first 10 days of leave are unpaid unless the employee elects to substitute accrued paid leave for the unpaid leave. However, the employer cannot force the employee to substitute paid leave. After the tenth day of leave, the employer must provide paid leave for each day of leave for the remainder of the 12 weeks.
The amount paid must be at least two-thirds of an employee’s regular rate of pay times the number of hours the employee would normally work with a limit on required payments for any single employee of $200 per day and $10,000 in the aggregate.
An employee who returns from this leave is entitled to be restored to his or her former position. However, if the employer has fewer than 25 employees, the employee is not required to be restored to their previous position if the following facts exist:
- The employee’s position does not exist due to economic conditions caused by the public health emergency during the period of leave;
- The employer makes reasonable efforts to restore the employee to a position equivalent to the position the employee held when the leave commenced; and
- If such reasonable efforts fail, the employer makes reasonable efforts to contact the employee if an equivalent position becomes available for one (1) year from the earlier of (a) the date on which the qualifying need related to a public health emergency concludes or (b) the date that is 12 weeks after the date on which the employee’s leave commenced.
Emergency Paid Sick Leave Act (“EPSLA”)
The Emergency Paid Sick Leave Act (“EPSLA”) also applies to all small and medium sized employers with 500 or fewer employees. EPSLA requires employers to provide paid “sick” leave to employees who are unable to work or telework because of one of the following:
- The employee is subject to Federal, State, or local quarantine;
- 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 a person who is subject to quarantine or been advised to self-quarantine by a health care provider;
- The employee is caring for their child because the child’s school is closed or childcare provider is unavailable due to COVID-19 precautions.
Employees who are health care providers or emergency responders can be excluded from sick leave under EPSLA.
Paid sick leave is not required to exceed 80 hours for full time employees. Part-time or hourly employees are paid sick leave based on the two week average of the number of hours that the employee normally works. An employee’s paid sick leave ends either (i) when available sick leave is it is exhausted or (ii), if the need for leave no longer exists, with the employee’s next scheduled work shift.
There is also a dollar limit to the amount of required paid sick leave. Paid sick leave under the first three reasons is not required to exceed more than $511 per day and $5,110 in the aggregate for any single employee. For the other two reasons, the paid sick leave is not required to exceed $200 per day or $2,000 in the aggregate for any single employee.
Full-time employees are entitled to 80 hours of paid sick time, and part-time or hourly employees are entitled to the specified amount of paid sick leave equal to the number of hours that the employee works on average over a 2-week period. The paid sick time ends beginning with the employee’s next scheduled work shift after the need to use this leave has ended.
The DOL is to provide additional guidance on how to calculate the amount of required paid sick leave.
Employers cannot require employees to use other paid leave provided by the employer to the employee before the employee uses paid sick leave under EPSLA.
Employers must post and maintain a notice setting forth the paid sick leave available to employees under EPSLA in a highly visible location. The DOL will shortly provide a model of notice.
The Emergency Paid Sick Leave Act and its requirements expire on December 31, 2020.
The FFCRA also provides tax credits. The FFCRA includes a 100 percent payroll tax credit for qualified sick leave wages paid under the EPSLA and for qualified family leave wages paid under the EFMLEA. There are tax credits for employers and self-employed taxpayers and FICA tax relief for employers.
The credits and exclusions apply only to wages paid (a) beginning on a date selected by the Secretary of the Treasury (within 15 days following March 18) and (b) ending December 31, 2020.
Tax Credits for Required Paid Sick & Paid Family Leave
Employers are eligible for tax credits to cover wages paid to their employees who receive paid sick or family leave under the new provisions These credits are taken against the employer’s portion of FICA and from self-employment taxes for self-employed individuals. Only employers subject to the new required paid sick leave and family and medical leave provisions are eligible to receive the tax credits discussed below.
Paid Sick Leave Tax Credit
The total sick leave tax credit for each employer is equal to 100% of the total qualifying paid sick leave wages paid for each of its employees during the calendar quarter provided that the credit cannot exceed the limits on amounts payable under EPSLA and EFMLEA if the employer should pay more than the required amounts.
The employer’s paid sick time payroll tax credit is claimed on a quarterly basis, presumably on the employer’s quarterly payroll tax returns (IRS Form 941). To avoid a double tax benefit, an employer is required to increase its gross income for the taxable year by the amount of the total sick leave credit received.
The amount of sick leave credit is increased by the portion of an employer’s “qualified health plan expenses” allocable to the employer’s qualifying sick leave wages. “Qualified health plan expenses” are amounts an employer pays or incurs to provide and maintain a group health plan, to the extent these amounts are excluded from the taxable gross income of employees.
For self-employed individuals there are similar refundable credits against self-employment taxes.
Self-employed individuals who take leave for COVID-19 Self-Care or COVID-19 Care for Others can claim a credit for the individual’s “qualified sick leave equivalent amount” due to inability to perform the services of the individual’s trade or business. The qualified sick leave equivalent is equal to the lesser of:
- Either (a) $511 per day ($5,110 total per calendar quarter) for a self-employed individual for COVID-19 Self-Care, or (b) $200 per day ($2,000 total per calendar quarter) for a self-employed individual providing COVID-19 Care for Others, and
- 67% of the self-employed individual’s “average daily self-employment income” for the taxable year (this amount is the individual’s net earnings from self-employment for the taxable year, divided by 360 days).
The Treasury Department is required to provide guidance on what documentation self-employed individuals must submit to claim the credit.
For employers and self-employed individuals, the total number of paid sick leave credit days is limited to 10 days per employee, less the total number of sick days taken into account for all preceding calendar quarters (or in the case of self-employed individuals, for all preceding taxable years) since enactment of the FFCRA. This total is calculated either per employee for any calendar quarter, or per self-employed individual for any taxable year.
This credit is refundable to the employer or self-employed individual to the extent it exceeds the total amount the employer owes in payroll taxes or the self-employed individual owes in self-employment tax.
Wages used in calculating an employer’s paid sick leave credit cannot be used to determine the credits related to paid family and medical leave.
Paid Family and Medical Leave Tax Credit
Employers are also allowed a credit each calendar quarter for an amount equal to 100% of “qualified family leave wages” the employer pays by reason of the emergency expansion of required family and medical leave under the provisions of the FFCRA.
Where employers pay more than the required minimum, the credit is limited to (a) up to $200 per day paid, and (b) a total of $10,000 in all calendar quarters for each employee. Again, to avoid a double tax benefit, the employer is required to increase its gross income for the taxable year by the amount of the total family and medical leave credit received.
Self-employed individuals are also allowed a credit against self-employment taxes for each taxable year in an amount equal to the product of:
- the number of days (not to exceed 50) during the taxable year that the individual is unable to perform services in any trade or business (on the same basis as if he or she were entitled leave under the emergency expansion of required family and medical leave), multiplied by
- the lesser of (a) 67% of the self-employed individual’s “average daily self-employment income” for the taxable year, or (b) $200.
This credit is refundable to the extent it exceeds the total amount the employer owes in payroll tax or the self-employed individual owes in self-employment tax. Ay wages considered in determining the family and medical leave credit cannot be used to determine the amount of credits related to paid sick leave under the FFCRA.
Exclusion of Paid Sick Leave or Paid Family Leave Wages from Employer’s OASDI Portion of FICA
Wages for sick leave and family and medical leave required to be paid under these new provisions will not be considered wages for purposes of the employer portion of the old age, survivor’s, and disability (OASDI) portion (6.2%) of FICA.