The Families First Coronavirus Response Act (H.R. 6201) and Related Tax Credits: What Employers Need to Know Before April 1, 2020
By Procopio Partner Tyler M. Paetkau and Associate Clint S. Engleson
Many employers across the country must prepare now for a new federal law that greatly expands employee access to paid leave. The Families First Coronavirus Response Act, H.R. 6201 (“FFCRA”), was signed into law on March 18, 2020, by President Donald Trump and takes effect on April 1, 2020. The Internal Revenue Service ("IRS") and the U.S. Department of Labor ("DOL") have now issued much-needed guidance that applies to all public employers and every private employer with 500 or fewer employees.
The FFCRA expands paid leave benefits in two ways: (1) emergency Paid Sick Leave (“COVID-PSL”); and (2) extended Family Medical Leave (“EFMLA”). These emergency laws also provide employers with tax breaks designed to offset the costs of providing paid leave. On March 20 and 23, the IRS announced that employers who make benefit payments to employees under the FFCRA can offset those payment amounts through immediate tax credits.
The DOL, meanwhile, on March 24 issued initial guidance to employers on the FFCRA, which includes provisions for COVID-PSL and EFMLA benefits. A link to the DOL’s FAQs is here.
FFCRA APPLICABILITY AND EFFECTIVE DATE
Which employers are affected? As mentioned above, both the COVID-PSL and EFMLA provisions of the FFCRA apply to all private employers with 500 or fewer employees, as well as all public employers. When assessing employee count for application of the FFCRA, the determining date will be when the employee’s leave is taken. The FFCRA allows the DOL to create regulations to exempt businesses with fewer than 50 employees “when the imposition of such requirements would jeopardize the viability of the business as a going concern.” The DOL can also create regulations allowing employers of “health care providers and emergency responders” to opt out of the FFCRA. It appears small businesses and healthcare employers will have to affirmatively seek an exemption from the DOL.
When is the effective date? Both the COVID-PSL and EFMLA provisions will go into effect no later than April 1, 2020. Currently, these provisions are not retroactive. However, the DOL is expected to release emergency regulations regarding COVID-PSL and EFMLA that may alter the effective date and retroactivity.
EMERGENCY PAID SICK LEAVE (COVID-PSL)
Who is eligible? All employees are entitled to COVID-PSL.
For what purposes? If any employee is unable to work or telework due to any of the six qualifying reasons:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19;
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19;
- The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis;
- The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2);
- The employee is caring for a child if the school or place of care of the child has been closed, or the child care provider of such child is unavailable, due to COVID–19 precautions; or
- 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.
How many hours? Full-time employees are entitled to 80 hours of COVID-PSL. Part-time employees are entitled to the number of hours they work on average over a two-week period.
At what rate? Employees must be paid at their regular rate of pay, subject to the following caps:
- $511/workday ($5,110 total) for reasons (1), (2) and (3).
- $200/workday ($2,000) for reasons (4), (5) and (6).
For exempt employees COVID-PSL will be paid at their base salary rate.
For non-exempt employees who regularly work overtime or earn varying rates of pay, bonuses, or commissions, COVID-PSL pay is calculated by dividing the total pay for employment (except for the statutory exclusions) in any workweek by the total number of hours actually worked to determine the regular rate. For non-exempt employees who do not work overtime or earn varying rates of pay, bonuses, or commissions, COVID-PSL will be paid at their straight hourly rate.
When calculating COVID-PSL for non-exempt employees, must overtime hours be included? Yes. Non-exempt employees must be paid for hours the employee would have been normally scheduled to work even if that is more than 40 hours in a week.
Are there other things an employer should know about COVID-PSL?
- Employees must “use it or lose it” by December 31, 2020.
- The employer cannot require the employee to use other paid leave banks before using COVID-PSL.
- The employer cannot require the employee to cover his or her workload or shift before using COVID-PSL.
- Similar protections apply to use of COVID-PSL as would apply to California PSL (e.g., no retaliation for using COVID-PSL).
- The employer is required to post information regarding the FFCRA in the workplace. The DOL created a model notice available here. For those employers whose employees are working from home, we recommend emailing a copy of the model notice to employees and posting it on the company intranet.
EXTENDED FAMILY MEDICAL LEAVE (“EFMLA”)
Who is eligible? All employees who have been employed by a covered employer for at least 30 calendar days. As discussed above, small businesses and healthcare employers may seek an exemption from the DOL.
For what purposes and how much leave? Any eligible employee is entitled to 12 weeks of leave if the employee is unable to work or telework due to the following: a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency.
Is it paid leave? The first two weeks are unpaid, although the employee may choose to use any available paid leave banks (including COVID-PSL), but the employer may not require it. The remaining ten weeks are paid.
How many hours are paid? Eligible employees are entitled to the number of hours they are “normally scheduled to work” which includes overtime hours.
At what rate are those hours paid? Employees must be paid at 2/3 of their regular rate of pay, subject to the following cap: $200/workday ($10,000 total).
FFCRA TAX CREDITS
The IRS recently issued news releases (available here), which explains that employers who make COVID-PSL and EFMLA payments to employees can offset those payment amounts through immediate tax breaks. Employers may also offset any health insurance costs that are properly allocable to the COVID-PSL and EFMLA payments to employees.
How do tax credits work? When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.
Under guidance released by the IRS, eligible employers who pay qualifying COVID-PSL or EFMLA will be able to immediately retain an amount of the payroll taxes equal to the amount of qualifying COVID-PSL and EFMLA benefits that they paid, rather than deposit those amounts with the IRS. The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
Here is an example from the IRS: If an employer owes a total of $8,000 in payroll taxes but paid $5,000 to pay COVID-PSL or EFMLA leave for employees, the employer will have to remit only $3,000 to the IRS.
What if employers do not have sufficient payroll taxes to offset the cost FFCRA benefits? If there are not sufficient payroll taxes to cover the employer cost of paying COVID-PSL and EFMLA benefits, employers will be able file a request for an accelerated reimbursement from the IRS. The IRS expects to process these requests in two weeks or less.
As referenced above, the DOL, IRS, and other agencies are expected to release further regulations and guidelines regarding the FFCRA before the law’s April 1, 2020 effective date. We will continue to provide timely updates as the federal agencies release the expected regulations and guidance.
If you have questions about this article, please contact Tyler M. Paetkau at firstname.lastname@example.org or Clint S. Engleson at email@example.com or any other member of the Firm’s Labor & Employment Group.
Tyler M. Paetkau is a Partner in Procopio's Labor & Employment practice group. He has represented employers in labor and employment law matters for more than 25 years. He has handled numerous litigation cases and has extensive employment counseling experience. Tyler’s areas of practice include defending employers against claims of wrongful termination, discrimination, retaliation, sexual harassment, defamation, wage and hour violations, unpaid commissions, collective and class actions, and unfair labor practice charges. Tyler also represents employers in litigation involving unfair competition, misappropriation of trade secrets, restrictive covenants, and employee mobility issues. He also has extensive experience representing employers in union-management labor relations matters, including union organizing campaigns, strikes, and collective bargaining negotiations.
Clint S. Engleson is an Associate in Procopio's Labor & Employment practice group. His practice focuses on representing employers in wage and hour litigation, including claims for failure to pay wages, failure to provide meal and rest breaks, misclassification claims, wage statement claims, class and collective actions, and claims brought under California’s Private Attorneys General Act (“PAGA”). Clint also works closely with employers on compliance with all aspects of California and federal employment laws. In this capacity, he has provided manager trainings, performed wage and hour audits, and revised employee handbooks, commission plans, wage statements, and meal and rest break policies.