On March 18, 2020, Congress passed and President Trump signed into law the Families First Coronavirus Response Act. This law was created to provide a way for small businesses to continue to pay their employees to avoid mass layoffs across the nation. It is important that employers understand the Act, as it entitles employees to both emergency paid sick leave and an expansion of the Family and Medical Leave Act (“FMLA”), even for small employers which had not previously been large enough to trigger such obligations.
There are two parts of this Act most likely to effect employers, the Emergency Paid Sick Leave and the Expansion of FMLA to include the current circumstances. This article discusses each in turn and then explains what is currently known regarding how a business will obtain the tax credits for facilitating the Act. Importantly, much about this Act is not yet clear, as the Secretary of Labor is not set to release regulations detailing the specifics of how to comply until April 2, 2020, and so it is likely that the methods of implementing the Act will change in the coming weeks and months.
Emergency Paid Sick Leave
Set to take effect on April 2, 2020, all employers who employ fewer than 500 employees1 are required to provide short term paid sick leave. This leave must be provided for all employees who cannot work from home regardless of the time the employee has been working for the employer2 The following describe the circumstances in which the leave applies:
1. The employee is subject to a quarantine or isolation order imposed by the Federal, Commonwealth, or local government due to Covid-19 (“CV”).
2. The employee has been advised by a health care provider to self-quarantine due to CV.
3. The employee has CV symptoms and is seeking diagnosis.
4. The employee is caring for an individual who is subject to anything described in paragraphs one or two.
5. The employee is caring for his or her child whose school or place of care is closed due to CV.
6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
There are some important things to note about the short term emergency leave. First, this leave is provided separate from whatever leave the employee may have with the employer, and therefore, the employer may not require the employee to use up any PTO or sick time before using the short term emergency leave described in the Act. It should also go without saying that employers are not allowed to discriminate or retaliate against employees who use the leave or make a complaint about using the leave.
Full time employees are entitled to up to 80 hours of paid sick time under the short term emergency leave section of the Act. To calculate how much time for which each part time employee is eligible, the employer should use the average time the employee works in a two week period. If the employee is taking leave under reasons 1, 2, or 3, they are entitled to the greater of the employee’s regular rate of pay or the applicable minimum wage rate not to exceed $511 per day and $5110 in the aggregate. If the employee is taking leave under reasons 4, 5, or 6, they are entitled to the greater of 2/3 the employee’s regular rate of pay or the applicable minimum wage rate not to exceed $200 per day and $2000 in the aggregate.
Expansion of FMLA
The same qualifying employers and employees for the emergency paid sick leave portion of the Act are also subject to an expansion of the FMLA, which typically defines the eligibility terms differently. Employees, however, must have at least 30 days of service to the employer to be eligible.
The language of the expansion includes requiring an employer to provide longer term leave for a “qualifying need related to a public health emergency,” specifically contemplating the CV situation. This includes the necessity of providing care to the employee’s children if the school or place of care has been closed due to CV.
If the employee is unable to work from home during the public health emergency, then as of April 2, 2020, the employee may initiate the expanded FMLA leave. Under this section, an employee may take up to 12 weeks of leave, with the first 10 days being unpaid, or covered under the emergency paid sick leave provisions. The remaining 10 weeks would be paid at 2/3 of the employee’s normal wages for the usual number of hours the employee would work. There is a limit to the payout, however, of $200 per day up to $10,000 in the aggregate.
Additionally, employers who have 25 or more employees must reinstate any employee returning from this expanded FMLA leave. If there are fewer than 25 employees, the returning employee is also entitled to reinstatement. If, however, his or her position no longer exists due to changed economic or operating conditions caused by CV, then the employer with fewer than 25 employees must make reasonable efforts to restore the employee to an equivalent position or reasonable efforts to contact the employee should an equivalent position become available.
An Employer May be Refunded for Payment to Employees via Tax Credits
Some of the details of how such refunds will occur are yet to be detailed in regulations from the Secretary of the Treasury, and so an employer can expect that the following explanation is subject to future clarification. Generally, from the time selected by the Secretary of the Treasury through the end of 2020, 100% of wages paid out under both the emergency paid sick leave and the expanded FMLA portions of the Act will be refunded via a tax credit. The credits may also be increased by the employer’s qualified health plan expenses which are allocable to the qualified wages for which the credit is allowed, but only to the extent that these amounts are excluded from the gross income of the employees.
This tax credit is allowed against the employer portion of Social Security and Medicare and Railroad Retirement payroll taxes imposed. The credits, however, are subject to the limitations imposed under each of the sections of the Act described above. While the credits taken cannot exceed the total employer payroll tax obligations on all wages for all employees, an employer may apply for credits above such obligations to be refunded to the employer. The credit is additionally limited because the employer’s gross income for the taxable year must be increased by the amount of the credit. Lastly, the credit is not allowed for wages for which a credit is already being allowed under the FMLA under the Tax Cuts and Jobs Act.
1 Employers who employ fewer than 50 employees may be deemed exempt by the Secretary of Labor if compliance would jeopardize the business’s viability as a going concern, however, the details of this exemption are not yet known as the regulations from the Secretary of Labor have not been released.
2 Employers may elect to exempt employees who are emergency responders and health care providers from the group of eligible employees.