President Donald Trump on Wednesday signed into law the “Families First Coronavirus Response Act” to address mandated sick leave for those infected with COVID-19.
The Act, which provides billions of dollars to fund programs related to health and economic issues surrounding COVID-19, was approved by the Senate earlier the same day.
The Act provides for mandated paid emergency sick leave and paid family and medical leave for many American workers. To fully offset wages paid under the program, employers will receive a tax credit.
The Act does not prohibit employers from paying benefits in excess of the limits, it just mandates a required amount (free of FICA and Medicare) that corresponds to the maximum available credit.
Given several uncertainties, such as timing of the credits to offset the cash outlay required by employers, it is paramount that employers and their trusted advisors are taking measures to deal with the administration of these programs.
Following are summaries of key provisions that will affect employers and employees:
Emergency paid sick leave: Full-time employees of companies with less than 500 employees and government employees are provided up to 80 hours of emergency paid leave. Part-time employees are also eligible based on the number of hours they would normally work in a two-week period. This provision is applicable regardless of the duration of employment. To receive this benefit, the employee must fall under specific qualifying circumstances, and the compensation received through mandatory paid leave is subject to a cap. These mandates will not apply for companies with 500 or more employees.
Employees eligible for this emergency paid leave in the qualifying circumstances can receive the lesser of their regular pay or $511 per day (maximum of $5,110 per affected employee):
- Employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis
- Employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
- Employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19
Employees in the following qualifying circumstances can receive the lesser of 67% of their regular pay or $200 per day (maximum of $2,000 per affected employee):
- Employee is caring for an individual who is subject to quarantine or self-quarantine as above
- Employee is caring for his or her child if the school or place of care of the child has been closed, or the childcare provider is unavailable, due to COVID-19 precautions
- The employer of an employee who is a health care provider or an emergency responder may elect to exclude such employee from these provisions
This paid leave is in addition to existing PTO, vacation or other paid leave. Employers cannot require employees to use any existing paid leave first. The Department of Labor has the authority to promulgate rules that allow employers of health care providers and emergency responders to opt out of the paid sick leave mandate.
Family and Medical Leave Expansion Act: Employees eligible for emergency paid leave also may qualify for the new Family and Medical Leave Expansion Act expansion (FMLA) of paid leave (for weeks three through twelve.) The first two weeks are unpaid under FMLA, but under the Emergency Paid Leave those weeks would already be covered. Employees are eligible for the FMLA expansion benefits if the employee is unable to work because they are required to care for their child under age 18. This benefit applies if their child’s school or place of care has been closed, or if the childcare provider is unavailable due to a public health emergency with respect to COVID-19, declared by a federal, state, or local authority.
This provision even applies to employees of companies with less than 50 employees that are not otherwise required to offer FMLA benefits. The Department of Labor has the authority to issue regulations exempting businesses with fewer than 50 employees from the expanded paid FMLA requirements when the imposition of such requirements would jeopardize the viability of the business as a going concern. Prudence dictates that small businesses do not rely on this language or assume that they’ll be exempt prior to the issuance of any definitive guidance
Inapplicability of FICA and Medicare taxes: Any wages paid by reason of the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act are NOT subject to FICA or Medicare tax.
Tax credits: The bill currently provides refundable tax credits to employers equal to the mandated benefits to compensate employers for payments made to affected employees. The credit is applied against the employer’s share of FICA and Medicare tax liability for the quarter in which the sick leave pay is paid. If the total sick leave payments made by the employer exceed its share of such taxes, the difference is refundable. The specific timing of when an employer can reduce payroll tax deposits to take advantage of this credit is uncertain at this time.
Like employee benefits, self-employed taxpayers are allowed a credit against self-employment tax. However, the credit is subject to the daily limit of 67% of average daily self-employment income, or $200. The Bill requires self-employed individuals to maintain documentation to establish self-employment eligibility as prescribed by the Secretary of the Treasury.
Employers will need to work closely with their payroll service to ensure compliance with these provisions as well as to ensure they are receiving the full credit due.
Effective date: The Act will be effective no later than 15 days after the date of enactment and will run through December 31, 2020, although benefits provided under the bill are prospective only.
Reprinted by permission
Richard J. Salter, CPA, JD, LL.M.
Tax Partner, Wipfli LLP
COVID-19 Resource Center, https://www.wipfli.com/covid-19-resource-center