Our world is forever changed in the wake of the novel Coronavirus. The long-term effects are difficult to know. But if you are a small business owner, you are necessarily focused on the present and likely struggling to keep up with the changes in our economy and the evolving regulatory landscape. Our new reality has required lawmakers to pass legislation intended to mitigate the negative consequences of the pandemic by protecting workers and the small businesses that employ them. The first of such new laws focuses largely on workers, but more relief is coming, and it will almost certainly include loans and grants for small businesses. In the meantime, the purpose of this article is to help you understand the recently passed Families First Coronavirus Response Act (“FFCRA”).
On March 18, 2020, President Trump signed the FFCRA. The new law takes effect on April 1, 2020, and remains in place through the end of 2020. It does many things, but most notably it expands employers’ obligation to provide paid leave to their employees for specific reasons related to COVID-19. This paid leave is in addition to existing PTO, vacation, or other paid leave employers already provide, and employers cannot require employees to use any existing paid leave first. The U.S. Department of Labor’s Wage and Hour Division administers and enforces these paid leave requirements.
Technically, the FFCRA expands rights under the Emergency Family and Medical Leave Expansion Act (“FMLA”) and imposes new requirements under the Emergency Paid Sick Leave Act within FFCRA. But this article does not focus on that. Instead, my goal is to help you sort it all out. Do the new requirements apply to you? If so, what do you need to do to comply? And finally, (and perhaps most importantly) how do you pay for it all?
In an effort to help you answer those questions, I have compiled this summary from resources published by the U.S. Department of Labor, U.S. Department of the Treasury and Internal Revenue Service.
Are you a covered employer? The FFCRA applies to private employers with fewer than 500 employees. If you are a covered employer, you are in good company. The U.S. Small Business Administration reports that companies with 500 or fewer workers employed roughly 59.9 million people in the U.S. in 2019—that’s 47% of the country's workforce.
Please note that small businesses with fewer than 50 employees may qualify for an exemption from the requirement to provide leave due to school closings or childcare unavailability if the leave requirements “would jeopardize the viability of the business as a going concern.” At the time of writing, the Department of Labor had not published guidance on how the exemptions would be handled. We expect that this important guidance will be coming soon.
If you are a covered employer, then the FFCRA generally requires that you must provide all employees with the following:
- Two weeks (up to 80 hours) of paid leave at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined (pursuant to Federal, State, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
- Two weeks (up to 80 hours) of paid leave at two-thirds the employee’s regular rate of pay because the employee is unable to work due to a genuine need to care for an individual subject to quarantine (pursuant to Federal, State, or local government order or advice of a health care provider), or care for a child under 18 years of age whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and the Treasury. We do not yet have guidance as to what constitutes a “substantially similar condition.”
A covered employer must also provide to employees that it has employed for at least 30 days the following additional paid leave:
- Up to an additional 10 weeks of paid leave at two-thirds the employee’s regular rate of pay where an employee is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.
Now, not all work absences will qualify an employee for paid leave. Under the FFCRA, an employee qualifies for paid leave if the employee is unable to work onsite or remotely because the employee:
- is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
- has been advised by a health care provider to self-quarantine related to COVID-19;
- is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
- is caring for an individual subject to an order described in (1) or self-quarantine as described in (2);
- is caring for a child whose school or place of care is closed (or childcare provider is unavailable) for reasons related to COVID-19; or
- is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
If your employee falls into one of these categories, then you must determine the duration of the employee’s paid leave. Don’t forget that the leave discussed here supplements any PTO, vacation, or paid leave policies you may also have in place. You may have obligations above and beyond those imposed by FFCRA.
For reasons (1) through (4) and (6) above, a full-time employee is eligible for up to 80 hours of leave, and a part-time employee is eligible for the number of hours of leave that the employee works on average over a two-week period.
For reason (5) above, a full-time employee is eligible for up to 12 weeks of leave at 40 hours a week, and a part-time employee is eligible for leave for the number of hours that the employee is normally scheduled to work over that period.
Finally, you must calculate the pay your employee is entitled to receive while on leave for one of these reasons.
For leave reasons (1), (2), or (3) above, employees shall be paid at either their regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 in the aggregate (over a 2-week period).
For leave reasons (4) or (6) above, employees shall be paid at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in the aggregate (over a 2-week period).
For leave reason (5) above, employees taking leave shall be paid at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $12,000 in the aggregate (over a 12-week period—two weeks of paid sick leave followed by up to 10 weeks of paid expanded family and medical leave).
For additional information, the Department of Labor has published guidance on the paid leave requirements at: https://www.dol.gov/agencies/whd/pandemic
This can all seem overwhelming, and you are likely wondering how you are going to pay these added expenses while your business may be suffering. Fortunately, covered employers qualify for a dollar-for-dollar reimbursement for all qualifying wages paid under FFCRA. The reimbursement comes in the form of a tax credit. Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage.
To take immediate advantage of the tax credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form. I expect the claim form and detailed guidance will be released by the Treasury Department within days. In the meantime, the Treasury Department has published the following examples of how the tax credit will work.
If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
Equivalent childcare leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.
We recommend you consult with your accountant or tax adviser for specific guidance on the tax credits.
The FFCRA was the first in a series of bills that are expected to be passed by congress and signed into law by the President over the coming days. The attorneys at Reno & Zahm LLP continue to monitor the legislative process and will provide updates. If you have any questions, please feel free to contact us.
Finally, if you are reading this summary, you have probably also read the Governor’s latest executive order (Executive Order 2020-10) requiring citizens to stay home unless they are traveling for an essential purpose. If you have questions about the order, please feel free to contact us with those questions as well.