The Families First Coronavirus Response Act (“FFCRA”) now requires certain employers to provide employees with paid sick leave and expanded family and medical leave for specific reasons related to the COVID-19 pandemic.
In general, private employers with fewer than 500 employees and most government employers must offer two new benefits: paid family leave and paid emergency sick leave tied to circumstances we’ll outline in the next section.
To offset the costs of these leave requirements, the FFCRA provides that non-governmental employers will receive a tax credit quarterly equal to 100% of the qualified wages paid for those benefits. The rules associated with the tax credit are examined at the end of this article.
Limited Expanded FMLA Benefits
The expanded FMLA benefits are available only for employees who need to stay home to care for a child due to a COVID-19 related school or care closure and cannot be used if the employee can work from home remotely. Employers are required to provide all employees who have been employed for 30 days or more, 12 weeks of protected leave for such absences, subject to requirements and limitations set forth in the law and guidance from the federal Department of Labor (“DOL”). Employers with fewer than 25 employees may seek an exemption from the law under limited circumstances.
Under this limited FMLA expansion, after an initial 10 day period that is unpaid under the expanded FMLA, employers must provide paid leave for 12 weeks at a rate of pay equal to two-thirds (2/3) of the employee’s regular wages, subject to caps of $200 per day and $10,000 per year total. For the first 10 days of qualified absences, the employee can choose the Emergency Sick Leave benefit described below or use other paid time off. The employer cannot require that the employee use accrued paid time off.
Paid Emergency Sick Leave Benefit
FFCRA also requires employers with fewer than 500 employees to provide two weeks (10 working days or 80 hours) paid leave for those unable to work because of COVID-19 related absences. Employees qualify if they are:
Based on a temporary federal rule published April 1, 2020, Governor Wolf’s current stay-at-home order qualifies as a state “quarantine or isolation order” that will authorize the payment of sick leave for non-essential workers who cannot work or telework.
The two-week emergency paid sick leave is available immediately, regardless of the employee’s tenure, and must be used by the end of the year 2020. It does not carry over to subsequent years and is not required to be paid to departing employees if unused. Finally, it is available to re-hired employees if the employees had worked for at least 30 days prior to being laid off.
FFCRA permits the Secretary of Labor to grant exceptions to the expanded Family and Medical Leave for employers with fewer than 50 employees when the requirements potentially jeopardize the long-term viability of the business. In addition, health care provider and first responder employers may elect to exclude their employees from application of this rule.
Effective April 1, 2020, employers are required to post information regarding their employees’ rights under FFCRA. Here is the employee poster: https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf
Employer and Self-Employed Tax Credits
Employers and those who are self-employed can receive a refundable tax credit against the employer’s share of FICA tax (6.2% of FICA wages) equal to 100% of the “qualified sick leave wages” and “required paid family leave” wages paid by the employer. However, the employer will be denied an income tax deduction for the “wages” used to generate the tax credit. The CARES Act Section 3606 authorizes the Treasury to give employers an advance tax credit rather than having to wait to be reimbursed on the back end. The IRS will likely issue administrative guidance on this process in the coming weeks.
A refundable payroll tax credit is available for the employer if: a) the employer had to fully or partially shut down; or b) gross receipts for the quarter declined by more than 50% when compared to the same quarter in the in the prior year. The credit is available for 50% of “qualified wages” paid from March 13, 2020 through December 31, 2020 (only the first $10,000 of wages per employee is counted for purposes of the credit). Only wages to paid laid-off employees are treated as “qualified wages.” “Qualified sick leave wages” and “required paid family leave wages” are not eligible for the credit. An employee’s share of health care benefits counts as “wages” for purposes of the credit. Small employers (100 or fewer employees) do not have to lay-off employees to claim the credit. The credit is not available if the employer receives a Paycheck Protection Program loan from the SBA. The credit for a quarter expires once gross receipts exceed 80% of the comparable quarter of 2019. https://home.treasury.gov/index.php/news/press-releases/sm962
Finally, a cash flow deferral is available for the employer’s share of social security taxes (6.2%) from wages that were paid from March 27, 2020 through December 31, 2020. The provision requires that the deferred employment tax be paid back over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. Similar tax deferral benefits are offered to self-employed individuals. This deferral is not available if the employer receives a Paycheck Protection Program loan from the SBA and has a portion of the loan forgiven.
Strassburger McKenna Gutnick & Gefsky attorneys have thoroughly reviewed the Acts and provisions outlined in this summary. We are available to advise clients on the impact they may have on their businesses.