Among other things, the Families First Coronavirus Response Act (FFCRA) temporarily requires certain employers to provide expanded paid sick and family leave for employees affected by the coronavirus pandemic. Employers’ increased costs will be offset by new tax credits, which also may be available to self-employed individuals.
Expanded family and medical leave
The FFCRA amends the federal Family and Medical Leave Act (FMLA) for employers with fewer than 500 employees. Those employers generally must provide employees who have been on the job for at least 30 calendar days with up to 12 weeks of job-protected leave, part of which is paid. The law also generally allows the leave in circumstances where an employee is unable to work due to a need to care for a minor child whose school or paid place of childcare has been closed or is unavailable due to COVID-19.
After 10 days, covered employers must provide paid leave at two-thirds of an employee’s usual rate. The pay requirement is limited, however, to $200 per day and $10,000 total per employee. Be aware that certain exemptions and special rules may apply regarding expanded family and medical leave.
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.
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.
An employee qualifies for the leave when he or she is unable to work (or telework) due to any of the following reasons:
- Is subject to a COVID-19-related quarantine or isolation order.
- Has been advised by a healthcare provider to self-quarantine.
- Is experiencing COVID-19 symptoms and seeking a medical diagnosis.
- Is caring for an individual subject to a COVID-19-related quarantine or isolation order.
- Is 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.
- Is experiencing substantially similar conditions specified by the U.S. Secretary of Health and Human Services Alex Azar.
When leave is taken for an employee’s own illness or quarantine (reasons 1 through 3 above), the leave must be paid at the employee’s regular rate, but no higher than $511 per day ($5,110 total). For leave taken for reasons 4 through 6 above, the leave must be paid at two-thirds of the regular rate, capped at $200 per day ($2,000 total).
Note that certain exemptions and special rules may apply regarding paid sick leave.
Exemptions for businesses with less than 50 employees
For a business with fewer than 50 employees, the FFCRA permits the Department of Labor to provide rules that allow the business to claim an exemption from certain leave requirements, if providing qualified leave wages would jeopardize the viability of the business as a going concern. Specifically, this exemption for such small businesses relates to providing paid sick leave and expanded family and medical leave for the purpose of caring for a child, whose school or place of care is closed or whose child care provider is unavailable due to COVID-19-related reasons. Any business that claims the exemption is not entitled to tax credits for any qualified leave wages that they are exempt from providing. Also note that the FFCRA permits employers whose employees are healthcare providers or emergency responders not to provide qualified sick leave or qualified family leave wages to those employees.
Tax credits for employers and the self-employed
Covered employers generally can take a federal payroll tax credit for 100% of the qualified family and sick leave wages they pay each quarter. The credits generally are available only to employers required to provide benefits by the new law.
The amount of wages taken into account for the paid family leave for each employee is capped at $200 per day and $10,000 for all calendar quarters. The amount of wages taken into account for paid sick leave is limited to $511 per day for leave taken for the employee’s own illness or quarantine and $200 for leave taken to care for others.
Wages considered when computing the credit amount won’t be taken into account when computing the existing Section 45S business tax credit for paid family and medical leave. Note that tax credits may also be available to certain self-employed individuals.
If the amount of the credits exceeds the employer portion of Social Security tax, then the excess is treated as an overpayment and refunded to the employer under Sections 6402(a) or 6413(a) of the Internal Revenue Code. Consistent with its treatment as an overpayment, the excess will be applied to offset any remaining tax liability on Form 941, Employer’s Quarterly Federal Tax Return, and the amount of any remaining excess will be reflected as an overpayment on Form 941. Like other overpayments of federal taxes, the overpayment will be subject to offset under Section 6402(a) of the Code prior to being refunded to the employer.
In anticipation of receiving the credits, Eligible Employers can fund qualified leave wages (and allocable qualified health plan expenses and the Eligible Employer’s share of Medicare tax on the qualified leave wages) by accessing federal employment taxes related to wages paid between April 1, 2020, and December 31, 2020, including withheld taxes, that otherwise must be deposited with the IRS. This means that in anticipation of claiming the credits on Form 941, Eligible Employers can retain the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, the employees’ share of Social Security and Medicare taxes, and the Eligible Employer’s share of Social Security and Medicare taxes.
Employers may request an advance payment of the tax credits for qualified sick and qualified family leave wages and the employee retention credit by completing Form 7200, Advance of Employer Credits Due to COVID-19, and faxing it to (855) 248-0552.
Document Retention
Eligible Employers claiming the credits for qualified leave wages (and allocable qualified health plan expenses and the Eligible Employer’s share of Medicare taxes), must retain records and documentation related to and supporting each employee’s leave to substantiate the claim for the credits, and retain Form 941, Form 7200, and any other applicable filings made to the IRS requesting the credit.
Effective dates
The new law provides that the paid leave provisions must take effect no later than 15 days after enacted. They expire on December 31, 2020. More relief affecting employees and businesses is sure to follow this legislation. Turn to us to for the latest developments.
If you would like more information or have questions about other COVID-19 guidance, visit PYA’s COVID-19 hub, or contact one of our PYA executives below at (800) 270-9629.
Disclaimer: To the best of our knowledge, this information was correct at the time of publication. Given the fluid situation, and with rapidly changing new guidance issued daily, be aware that some or all of this information may no longer apply. Please visit our COVID-19 hub frequently for the latest updates, as we are working diligently to put forth the most relevant helpful guidance as it becomes available.
