This article was updated March 27, 2020.
On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (H.R. 6201) despite objections from some lawmakers that the act doesn’t offer enough assistance and could hurt some small businesses by mandating paid sick and family leave.
The act includes a wide range of provisions, including:
- Insurance coverage
- Reimbursement of diagnostic testing costs
- Expanded safeguards for economically disadvantaged individuals
It also includes two payroll credits for the Emergency Family and Medical Leave Expansion Act and Emergency Paid Sick Leave Act that will affect certain employers and workers through December 31, 2020, and a prohibition on retaliating against any employee who takes leave in accordance with the new law.
The act further provides that the failure to pay required sick leave will be treated as a failure to pay minimum wages in violation of the Fair Labor Standards Act.
Employers are reminded that all current federal and state employment laws are still in effect.
Payroll Tax Credits for Impacted Employers
H.R. 6201 helps eligible employers, subject to the provisions, by allowing them to take a tax credit against their payroll taxes for the qualified family and medical leave and sick leave wages paid each quarter, up to certain limits.
Employers can get reimbursed for up to 10 days of paid sick leave and up to 50 days of paid family leave provided to each employee, subject to limitations.
Additionally, the act provides an allowance for certain health plan expenses.
Paid Sick Leave Credit
The paid sick leave credit is 100% of an employee’s regular rate of pay, but limited to $511 per day and $5,110 in the aggregate over the 10-day period, for employees who are taking leave to self-quarantine due to their own illness, a governmental quarantine or isolation order, or are experiencing symptoms and are seeking a medical diagnosis.
If the employee is caring for an individual in quarantine or isolation because of COVID-19—or caring for a son or daughter because school or other care is closed due to COVID-19 precautions—the credit is limited to two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, over the 10-day period.
Paid Family and Medical Leave Credit
In addition to the paid sick leave credit, eligible employers can receive a paid family and medical leave credit when caring for a child due to a closed school or unavailable child care as a result of COVID-19 precautions.
The credit is limited to two-thirds of the employee’s regular rate of pay, up to $200 per day and $10,000 in the aggregate, over the 50-day period.
Any excess credit over their payroll tax liability is refundable, no deduction is allowed for the amount of the credit. No credit is allowed for wages that are subject to the Section 45S business tax credit.
The credits under paid sick leave and family and medical leave may be available to some self-employed individuals.
Emergency Expanded Family and Medical Leave
The act amends the Family and Medical Leave Act (FMLA) for employees who:
- Work for employers with fewer than 500 employees
- Are employed for at least 30 calendar days
This includes those who work under a multiemployer collective agreement and whose employers pay into a multiemployer plan. Employees will have the right to take up to 12 weeks of job-protected leave if they are unable to work, or telework, due to a need to care for a son or daughter under 18 years of age whose school or place of childcare has been closed or is unavailable due to COVID-19.
The FMLA generally requires only job-protected leave, not paid leave. For leave under the new law, only the first 10 days of leave may be unpaid. Those 10 days might, however, qualify for paid sick leave—see below.
After 10 days, covered employers must provide paid leave at two-thirds of an employee’s usual rate. However, the pay requirement is limited to:
- $200 per day
- $10,000 total per employee
This may mean if an employee utilized the full 12 weeks of expanded FMLA coverage, the first 10 days could be unpaid—unless the employee elects to use employer-provided paid time off, or qualifies for paid sick leave as noted below—and up to 10 weeks or 50 days paid at $200 per day for a total of $10,000 per employee.
Be aware that certain exemptions and special rules may apply regarding expanded family and medical leave.
Emergency Paid Sick Leave
Under the new law, employers with fewer than 500 employees must provide 80 hours of paid sick leave for full-time employees in certain situations.
Part-time employees are entitled to this paid sick leave for the average number of hours worked over a two-week period.
Paid sick time is not carried over from one year to the next.
Employees are eligible regardless of how long they’ve worked with the employer, and employers can’t require an employee to use other paid leave before the paid sick time as allowed under the new law.
An employee qualifies for the leave when he or she is unable to work, or telework, because the employee is:
- Subject to a federal, state or local COVID-19-related quarantine or isolation order
- Advised by a health care provider to self-quarantine
- Experiencing COVID-19 symptoms and seeking a medical diagnosis
- Caring for an individual subject to a COVID-19-related quarantine or isolation order
- Caring for a son or daughter whose school or place of care has been closed, or whose childcare provider is unavailable, due to COVID-19 precautions
- Experiencing substantially similar conditions specified by the U.S. Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor
When leave is taken for an employee’s own illness or quarantine, the leave is required to be paid at the employee’s regular rate, up to $511 per day for a total of $5,110.
When leave is taken to care for another individual or child, the leave is required to be paid at two-thirds of the regular rate, up to $200 per day for a total of $2,000.
The act gives the US Secretary of Labor the power to issue regulations that exempt small businesses with fewer than 50 employees from providing the paid family leave or paid sick leave if it would jeopardize the viability of the business.
Many American workers may not directly benefit from these provisions because of this potential exemption—and the fact that they don’t apply to employers with 500 or more employees.
The new law takes effect April 1, 2020 and expires on December 31, 2020. More relief affecting employees and businesses is sure to follow this legislation.
On March 13, 2020, as part of the national emergency declaration, President Trump waived interest payments on federal student loans “until further notice.” This will allow borrowers to pause their payments without penalty.
The Internal Revenue Service (IRS) issued official guidance for some taxpayers to defer the tax filing deadline to July 15, 2020, due to the COVID-19 pandemic on March 18, 2020. Additionally, the extended due date moves the deposit date of certain of IRA contributions, HSA or Archer MSA contributions, and certain workplace-based retirement plans.
High-Deductible Health Plan (HDHP) Coverage
The IRS has published new guidance making clear that HDHPs can pay for COVID-19-related testing and treatment without putting their status at risk.
Individuals with HDHPs that provide such coverage can continue to contribute to their health savings accounts (HSAs) and deduct the contributions on their 2020 tax returns—or make pretax contributions to their employer-sponsored HSAs.
Health insurance plans generally must satisfy several requirements to qualify as an HDHP. For example, providing nonpreventive health care coverage without a deductible—or with a deductible below the requisite minimum—would forfeit HDHP status. It should be noted that vaccinations are considered preventive care.
The IRS is temporarily suspending this rule to avoid administrative delays or other financial disincentives that could impede testing and treating for COVID-19.
Many states—including California, Maryland, Oregon, and Washington—have announced tax relief related to COVID-19. This is an evolving national situation and it’s likely that other states will provide additional filing relief.
We’re Here to Help
The new requirement mandates some employers provide paid leave to their employees unable to work due to COVID-19. To ease the burden on the employer, this paid leave cost is offset by the payroll credit. The quick passage of the act leaves many questions still unanswered and further guidance is needed to fully interpret the impact to employers.
If you have questions regarding the payroll credit calculations for your organization, please reach out to a Moss Adams professional. Check back with more information to come on the Credits and Incentives page. Additionally, we recommend you reach out to your employment attorney to understand the application of the act to your business.