The Families First Coronavirus Response Act raced through Congress last week and was signed by President Trump on Wednesday. The Act brings sweeping changes to the workplace: on April 2, 2020, for the first time in U.S. history, small employers will be required to offer paid sick leave and paid family leave. This article deals only with the sick leave and family leave provisions of the Act and the related tax credits for employers.
The new law is only effective for the remainder of 2020 and is aimed at curtailing the spread of the coronavirus and providing help to employees who must miss work because of issues related to the pandemic.
The Act takes a carrot and stick approach with employers — mostly a stick, but a big carrot in the form of tax credits is being dangled in front of small businesses to encourage compliance and to pay for most of the expenses they will incur.
If you work for a small business with fewer than 500 employees or for a school or governmental entity of any size, you are entitled to two weeks of Required Paid Sick Leave at your regular pay if you are unable to work or “telework” for any of the following reasons:
» You are subject to a Federal, State or local quarantine or isolation order related to COVID-19;
» You personally have been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
» You are experiencing symptoms of COVID-19 and are seeking a medical diagnosis.
If you work part time, you are entitled to pay for your regular hours. It doesn’t matter if you have been on the job for one day or ten years, you are still entitled to this benefit.
Required Paid Sick Leave is in addition to any sick leave or PTO that your employer already offers. Your employer cannot reduce your PTO by the number of days you use with this benefit.
You can also use your Required Paid Sick Leave to care for an individual who is quarantined or to care for your child if the child’s school or daycare has closed due to COVID-19 precautions. In this situation, however, you are not entitled to full pay but only for 67% of your regular pay.
If you have been on the job for at least 30 days, you are entitled to 12 weeks of
Required Paid Family Leave. The first two weeks of Required Paid Family Leave are unpaid unless your employer elects to pay you or you otherwise qualify for sick leave or PTO. For the next 10 weeks of Family Leave you are entitled to 67% of your regular pay.
You are entitled to Required Paid Family Leave if you cannot work or telework for the following reasons:
» You need leave to care for a son or daughter under age 18 because school or daycare has been closed; or
» Your child care provider (which may include private providers you pay on a regular basis) is unavailable due to a public health emergency.
If your child’s school or regular daycare has closed and you otherwise qualify (e.g., you cannot telework), by combining the Required Sick Leave Pay with the Required Paid Family Leave you could still receive 12 weeks of pay for the time you had to miss work to care for your child. However, with the Required Paid Family Leave you may have to demonstrate the “need” to care for your child whereas with Required Sick Leave Pay there is no requirement that you demonstrate that need, only that your child’s school or daycare has been closed.
Required Paid Family Leave is not guaranteed if your employer has fewer than 50 employees. Hardship exemptions are contemplated if these smaller employers can show that having to offer this benefit may put them out of business. Additionally, health care providers and emergency responders will be exempt from the requirements.
If your employer has fewer than 25 employees, you are not guaranteed reemployment in your same job if it was eliminated during your leave because of a change in economic conditions caused by the coronavirus. However, your employer must make reasonable efforts to restore you to an equivalent position for at least a year.
If you’ve read this far, you already know the bad news. But here is the good news—the carrot part.
Under the bill, private employers (but not governmental employers) will receive a payroll tax credit for sick leave up to $511 per day per employee for Required Sick Leave Pay. However, if sick leave is used for care of quarantined individuals or for the care for a child, the credit is limited to $200 per day. Generally, the credit corresponds with the number of days and hours for which sick leave is guaranteed for the employee.
The credit is increased by an employer’s qualified health plan expenses—the employer’s portion of group health insurance, for example.
The credit for Required Paid Family Leave (the 12-week benefit) is less generous. It is limited to $200 per day and is further capped at $10,000 for each employee. Again, the credit is increased for a portion of qualified health plan expenses.
The credit for the sick leave benefit should cover an employer’s wage cost for employees making up to $132,860 per year. The credit for the family and medical leave benefit will only cover wage costs for employees making up to $78,000 per year.
The best news for employers is how the credit is paid. It is refundable. First, the credit is applied to the employer’s portion of social security taxes. If the credit is greater than that liability, the balance is refunded to the employer. The credit can be claimed quarterly, meaning employers will not have to wait until the end of the year to receive this government aid.
There may be ways for employers to benefit over and above a dollar-for-dollar exchange. First, it would make sense to try to pass along as much of the government largesse to employees as possible. Instead of automatically adopting a 67% pay rule for the family leave benefit, a formula could possibly be used to achieve full pay to employees up to the $200 per day refund amount.
A word of caution: the act gives the IRS broad authority to write tax regulations related to these benefits. An employer may extend a benefit only to see the IRS claw it back at a later time.
Employers with diminished labor needs may have employees who are eligible for family leave (for example, a child out of school) who may voluntarily take that leave knowing their job would be guaranteed when the leave ends. In this situation, the employer would benefit from this government program for the 12-week benefit while keeping its workforce intact after the storm passes.
Surprisingly, self-employed workers are also eligible for both benefits with the same tax credits available. We can expect even stricter regulations to be issued by the IRS in regard to self-employed persons because of the complexities and opportunities for fraud and abuse.
Employers and self-employed workers are required to keep detailed records for each employee receiving benefits although the law does not require a doctor’s letter since in a dire situation that may be unavailable. Recordkeeping rules will be issued by both the Department of Labor and the IRS.
The DOL regulations are supposed to be issued by April 2, the date the Act goes into effect (no word on when IRS regulations will be issued), so as a practical matter, employers will have to start maintaining records before they even know what records they are required to maintain. That’s no way to run a railroad, but then, a pandemic is not a railroad.
Concerted effort; reasonable solution
It’s amazing what the U.S. Congress can accomplish when called to action. There was a little wrangling from both sides of the aisle on some provisions in the bill. In the end, both sides got some things they wanted and didn’t get some things they wanted. Overall it was a true bi-partisan effort with 90% of both chambers voting for the law—a rarity these days.
The end result is not perfect—there are many unanswered questions, gaps in coverage, perhaps too much coverage for employers already offering benefits—but even at a projected cost of over $100 billion, the Families First Coronavirus Response Act is calculated to accomplish what the country needs at this particular moment in our history. Godspeed to us all.
DISCLAIMER: The information contained in this article is informational in nature and is not intended and should not be construed, as legal or tax advice. This material may not be applicable to your circumstances or needs and may require consideration of many other factors if any action is to be contemplated. The Shelley Law Firm is located in Concord, N.C., and only gives legal advice when clients have signed a written retainer with the firm.