On March 18, President Trump signed into law the Families First Coronavirus Response Act (PL 116-127) which among other provisions, provides for paid sick leave and paid family leave to address work and employment interruptions related to the coronavirus. The legislation enables employers to keep their workers on their payrolls, while at the same time ensures that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus. The new law takes effect on April 1, 2020 and will remain effective until December 31, 2020.
Emergency Paid Sick Leave in the Families First Coronavirus Response Act
The Families First Coronavirus Response Act requires small and medium size businesses with under 500 employees to provide paid sick leave to employees affected by the coronavirus. This provision is targeted to specific employees who are unable to work (or telework) and who meet any one of the following six conditions:
1. They are subject to a Federal, State, or local quarantine or isolation order related to the coronavirus;
2. They have been advised by a health care provider to self-quarantine due to concerns related to the coronavirus (“quarantined employee”);
3. They are experiencing symptoms of coronavirus and seeking a medical diagnosis;
4. They are caring for an individual who is subject to an isolation order or is a quarantined employee;
5. They are caring for a son or daughter if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to coronavirus precautions; or
6. They are experiencing any other substantially similar condition as specified by the Secretary of Health and Human Services.
Eligible full-time employees can receive up to 80 hours of paid sick leave, while part time employees are eligible for leave based on their recent work history. Paid sick leave is calculated based on an employee’s regular compensation but is capped at $511 per day (and $5,110 in the aggregate) for employees who fall into the first three eligibility categories (#1, #2 and #3), relating to the employee’s own health. For employees who fall into the two care-related categories (#4 and #5) and the catch-all category (#6), paid leave is two-thirds of regular compensation and the wage cap is $200 per day (and $2,000 in the aggregate).
The Labor Department is granted broad authority to exempt small businesses with fewer than 50 employees from the child-care related leave requirement if it would jeopardize the business’ viability. The Labor Department is expected to provide guidance and rulemaking to clearly articulate this standard.
Emergency Family and Medical Leave Expansion in the Families First Coronavirus Response Act
The Families First Coronavirus Response Act requires small and medium-size businesses with under 500 employees to provide paid family leave to eligible employees affected by the coronavirus. An eligible employee may take up to 12 weeks of leave if they are unable to work (or telework) because they must care for their child under 18 years of age if the school or place of care of the child has been closed, or the child care provider is unavailable, due to coronavirus precautions.
Eligible full-time employees can receive family leave pay at a rate not less than two-thirds of their regular pay. The paid family leave pay is capped at $200 per day (and $10,000 in the aggregate). The initial 10 days of leave are unpaid, but the employee may elect to use their accrued paid sick leave and/or accrued vacation during this otherwise unpaid period.
As with the Emergency Paid Sick Leave, the Labor Department is granted broad authority to exempt small businesses with fewer than 50 employees if the requirement to provide leave would jeopardize the business’ viability. The Labor Department is expected to provide guidance and rulemaking to clearly articulate this standard.
Tax Credits for Paid Sick and Paid Family and Medical Leave in the Families First Coronavirus Response Act
Every dollar of paid sick leave and paid family leave that employers are required to pay to eligible employees under the Families First Coronavirus Response Act is offset by a refundable payroll tax credit. The tax credit is applied against their employer portion of the Social Security taxes. The credit amount tracks the $511/$5,110 and $200/$2,000 per employee limits described above for paid sick leave and $200/$10,000 per employee limits described above for paid family leave.
Credit amounts earned in excess of the employer’s 6.2% Social Security tax are refundable. The credit applies to wages paid in a period beginning on April 1, 2020 and ending on December 31, 2020.
Equivalent credits are available to self-employed individuals based on similar circumstances. These credits will be claimed on their income tax return and will reduce their estimated tax payments.
A full-time eligible employee unable to work or tele-work due to the closure of their child’s school because of the coronavirus will be entitled to 10 days (i.e. 80 hours) of paid sick leave and up to 12 weeks of family leave under the Act. The first 10 days can be paid as Emergency Paid Sick Leave at two-thirds of their regular compensation, but no more than $200 per day and $2,000 in the aggregate (per employee). Alternatively, the employee can elect to use other sick pay, vacation, or PTO instead. The remaining 10 weeks would again be paid by the employer at two-thirds of their regular compensation up to a maximum of $200 per day and $10,000 in the aggregate (per employee). The total amount received by the eligible employee under this new law would be $12,000.
As the employer makes payments to the employee for the sick leave and family leave, the employer would seek reimbursement for the wages paid to the employee through payroll tax credits. The refundable credit is reported on the employer’s quarterly IRS Form 941 employment tax returns. Note that some employers may qualify to retain an amount of the payroll taxes equal to the amount of qualifying sick and family leave that they paid rather than deposit them with the IRS. More guidance from the IRS is expected with regards to these procedures in the next few days.
As always, Lanigan, Ryan, Malcolm & Doyle will continue to monitor this evolving situation and add updates to our new COVID-19 resource center as they become available. As an “essential” business in the state of Maryland, we will continue to work for clients to meet upcoming deadlines, while emphasizing the safety of both our clients and our team. Please know that your Lanigan, Ryan team members are always available for questions.