The Families First Coronavirus Response Act
The federal government recently passed the Families First Coronavirus Response Act (“Act”) in response to the COVID-19 outbreak. The new legislation will significantly impact business operations, primarily as it relates to paid leave. The more pertinent provisions applicable to employers are discussed below. This article is a high-level overview highlighting important issues and not an in-depth analysis. For specific questions, as they relate to the matters discussed below or other matters under the Act, a more detailed explanation may be necessary.
Additionally, it is advisable to wait to implement the paid leave obligations discussed in this article until the effective date. If an employer implements the paid leave obligations prior to the effective date, it may be unable to obtain the beneficial tax credits discussed below. Finally, Congress passed this legislation quickly. As a result, many questions remained unanswered and should be addressed in regulations that should provide more clarity.
Effective Date
The effective date of the Act is to occur not later than fifteen (15) days after March 18, 2020, which was the date of enactment. Thus, the effective date will likely be April 2, 2020, but could occur sooner. The Act will remain in place until December 31, 2020.
Coverage Under the Families First Coronavirus Response Act
The Act creates two paid leave obligations; The Emergency Paid Sick Leave Act (“Emergency Paid Sick Leave”) and The Emergency Family and Medical Leave Expansion Act (“Emergency Paid Family and Medical Leave”). Those two acts create obligations that only apply to private employers with less than 500 employees and also certain public employers. It appears that the five hundred (500) employee threshold does not apply to public entities.
Responsibility for Payment
The employer is responsible for paying both the Emergency Paid Sick Leave benefits and the Emergency Paid Family, and Medical Leave benefits. However, the employer can apply for certain tax credits, as discussed below.
Emergency Paid Sick Leave
Amount of Leave. Employers must provide eighty (80) hours of Emergency Paid Sick Leave to full-time employees. For part-time employees, Employers must provide Emergency Paid Sick Leave equal to the number of hours an employee works on average per day over a two-week period.
If an employee’s hours vary from week to week to such an extent that the employer is unable to determine the number of hours the employee would have worked in the absence of using Emergency Paid Sick Leave, then the employer must use one of the following methods in providing Emergency Paid Sick Leave: (a) if the employee did not work over the previous six months, then the employee’s reasonable expectation of the hours per day the employee would have worked or (b) the average hours the employee worked over a six month period ending on the date the Emergency Paid Sick Leave is set to begin.
Reasons for Leave. The Act outlines specific reasons an employee may use Emergency Paid Sick Leave:
- The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
- a health care provider has advised an employee to self-quarantine due to concerns related to COVID-19;
- The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
- The employee is caring for an individual who is subject to an order as described in (1) or is caring for an individual that has been advised as described in (2);
- The employee is caring for his or her son or daughter if the school or place of care of the son or daughter has been closed, or the childcare provider of such son or daughter is unavailable, due to COVID-19 precautions; and
- The employee is experiencing any other substantially similar condition.
Compensation. Emergency Paid Sick Leave is paid at the employee’s regular rate of pay. However, if Emergency Paid Sick Leave is used for reasons (4)-(6) above, the employee’s required compensation shall be two-thirds of the employee’s regular rate of pay. The pay is capped at $511 per day and $5,110 in the aggregate when the use is for reasons (1)-(3) above. The pay is capped at $200 per day and $2,000 in the aggregate when the use is for reasons (4)-(6) above. An employee’s regular rate of pay is determined in the same manner as under section 7(e) of the Fair Labor Standards Act.
Accrual. The Emergency Paid Sick Leave is available immediately and not subject to an accrual schedule.
Eligible Employees. All employees are eligible for Emergency Paid Sick Leave based on the appropriate reasons discussed above. An employer of an employee who is a health care provider or an emergency responder may exclude employees from coverage. Notably, the term emergency responder is undefined. We hope to have more clarity on that issue in the forthcoming regulations.
Notice. Each employer is required to post in a conspicuous place a notice of Emergency Paid Sick Leave benefits. The Secretary of Labor will prepare an approved poster before March 25, 2020 for businesses to use. After the first day in which an employee receives sick pay, the employer can require the employee to follow reasonable notice procedures to continue to receive Emergency Paid Sick Leave.
Carryover. Unused Emergency Paid Sick Leave does not carry over to the next calendar year.
Pay Out. An employer is not required to pay out unused Emergency Paid Sick Leave if an employee separates from employment.
Other Paid Sick Leave. An employer is prohibited from requiring an employee to use other paid sick time before using Emergency Paid Sick Leave. Emergency Paid Sick Leave is in addition to other sick leave to which the employee is entitled under an employer’s existing policies.
Replacement Worker. An employee that utilizes Emergency Paid Sick Leave may not be required to find a replacement worker.
Emergency Paid Family and Medical Leave
Amount of Leave. Employees are entitled to use up to twelve (12) weeks of leave for Emergency Paid Family and Medical Leave purposes. Emergency Paid Family and Medical Leave is not in addition to the standard twelve (12) weeks of unpaid leave under the Family and Medical Leave Act (“FMLA”). The new legislation merely provides an additional reason to use FMLA, but on a paid basis.
Reason for Leave. The new legislation allows an employee who is unable to work or telework to use Emergency Paid Family, and Medical Leave due to a need to care for the employee’s son or daughter if the child’s school or place of care is closed, or the childcare provider is unavailable, due to a public health emergency. This is the only reason that an employee may use Emergency Paid Family and Medical Leave. Importantly, the new law defines a childcare provider as one “who receives compensation for providing childcare services on a regular basis.” So, for example, an employee cannot use Emergency Paid Family and Medical Leave if a grandparent, who is not compensated, is unable to care for a child.
Compensation. The first ten (10) days of Emergency Paid Family and Medical Leave can be unpaid. The remaining absences are paid at two-thirds of the employee’s regular rate of pay for the number of hours the employee would otherwise be normally scheduled to work, up to twelve (12) work weeks. An employee may use any accrued vacation time, personal leave, or other medical and sick leave for the unpaid portion of the Emergency Paid Family and Medical Leave An employer cannot require an employee to use any paid accruals, such as paid time off or vacation.
If an employee’s hours vary from week to week to such an extent that the employer is unable to determine the number of hours that employee would have worked in the absence of using Emergency Paid Family and Medical Leave, then the employer must use one of the following methods in providing Emergency Paid Family and Medical Leave: (a) if the employee did not work over the previous six months, then the employee’s reasonable expectation of the hours per day the employee would have worked or (b) the average hours the employee worked over a six month period ending on the date the Emergency Paid Family and Medical Leave is set to begin. The law includes a cap of $200 per day and $10,000 in the aggregate.
Eligible Employees. To be eligible for Emergency Paid Family and Medical Leave, employees must have worked for the employer for at least thirty (30) calendar days. The standard FMLA eligibility rules do not apply to Emergency Paid Family and Medical Leave. Additionally, the Secretary of Labor may exclude from coverage certain health care providers or emergency responders under regulations that have yet to be promulgated.
Notice. Employees must provide employers with notice of Emergency Paid Family and Medical Leave as soon as practicable.
Job Restoration. Employers with twenty-five (25) or more employees must still follow the standard FMLA job-restoration requirements. However, employers with less than twenty-five (25) employees are not subject to mandatory job restoration if upon the employee’s return the position no longer exists due to economic conditions or changes in the employer’s operation condition caused by a public health emergency.
Small Business Exemption. The Secretary of Labor has the ability to exempt small businesses with fewer than fifty (50) employees from the obligations under the Emergency Paid Family and Medical Leave when the obligations would jeopardize the viability of the business.
Tax Credits
Generally, the rules for obtaining tax credits for Emergency Paid Sick Leave and Emergency Paid Family and Medical Leave are the same. However, they do vary in some respects. The full breadth of the tax credit provisions are not discussed in detail in this article. This discussion is provided as a brief overview of the benefits to which employers are able to take advantage in light of the financial burden the new legislation imposes.
Payroll Tax Credit. Employers are permitted to apply for a tax credit against the Federal Insurance Contributions Act (“FICA”) tax imposed for each calendar quarter in an amount equal to the wages paid to the each employee for Emergency Paid Sick Leave and Emergency Paid Family and Medical Leave.
Amount of Tax Credit. The amount of the Emergency Paid Sick Leave tax credit shall not exceed $200 per day for any day (or portion thereof) for which an employee is paid Emergency Paid Sick Leave wages for Emergency Paid Sick Leave reasons (4)-(6). Additionally, the Emergency Paid Sick Leave tax credit shall not exceed $511 per day for any day (or portion thereof) for which an employee is paid Emergency Paid Sick Leave wages for Emergency Paid Sick Leave reasons (1)-(3). The amount of the Emergency Paid Family and Medical Leave tax credit shall not exceed $200 per day for any day (or portion thereof) for which an employee receives Emergency Paid Family and Medical Leave wages and the aggregate amount of the Emergency Paid Family and Medical Leave tax credit shall not exceed $10,000 for all calendar quarters.
Day Limitation. For Emergency Paid Sick Leave, each calendar quarter in which a tax credit is taken, the number of days taken into account cannot exceed the excess of 10 over the number of days taken into account in all preceding calendar quarters. The tax credit for Emergency Paid Family and Medical Leave does not contain a day limitation.
Refundability. Generally, both tax credits taken cannot exceed the amount of FICA tax imposed per calendar quarter. However, if the tax credit exceeds an employer’s FICA tax obligation in a given calendar quarter, then the employer can obtain a refundable tax credit.
Qualified Health Plan Expenses. Both tax credits include the employer’s cost of providing health coverage to employees who are on Emergency Paid Sick Leave and Emergency Paid Family and Medical Leave. Each tax credit can be increased by a certain amount attributable to the amount the employer pays to maintain an employee’s health coverage while using Emergency Paid Sick Leave or Emergency Paid Family and Medical Leave that is excluded from an employee’s gross income for federal income tax purposes. Allocation rules, or rules to calculate the amount of the increase, are set to be released in regulations or guidance that the Secretary of the Treasury has yet to promulgate.
Since March 14, 2020 this legislation has evolved through multiple iterations. Although we now have a final piece of legislation on the books, questions regarding interpretation and implementation remain unresolved. As we continue to understand the full scope of the Emergency Paid Sick Leave, the Emergency Paid Family and Medical Leave, and the associated tax credits, we remain committed to keeping you informed and update to date regarding the rights and obligations under the Act. You can contact our employment team for any questions or concerns you have under the Act.
Peter M. Langdon
Harvey B. Cooper
(402) 392-1250