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March 17, 2020

The Families First Coronavirus Response Act, and Impact on Employers - Part 2

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As tax attorneys and business professionals in Columbus, Ohio, we assist business owners in many aspects of their business, including business and tax planning, as well as the impact of legislation on business income and cash flow. In an earlier blog, we discussed the recently passed (by the House) Families First Coronavirus Response Act (the “Families First Bill”). We now want to provide some additional details, and how this may impact businesses.

Background

On March 14, 2020, the House passed the Families First Bill. And then, on March 16, 2020, certain technical corrections were made to the bill. The Senate and President are in support of that bill, although, it is unclear on what changes will be made. What is clear, however, is that the employers will bear the brunt of this legislation, especially when it comes to paid sick leave. Please see a discussion below.   

Paid Family Medical Leave

  1. The bill amends the Family and Medical Leave Act of 1993 (FMLA) to provide 12 weeks of job-protected leave to employees who have been on the job for at least 30 days and who are also employees of employers with fewer than 500 employees.
  2. Among other uses, qualifying employees may use the leave to respond to quarantine requirements or recommendations, to care for family members who are responding to quarantine requirements or recommendations, and to care for a child whose school or place of care has been closed as a result of the COVID-19 pandemic.
  3. The bill allows the first 14 days of the leave to be unpaid. Employees may use accrued personal or sick leave during the first 14 days, but employers may not require employees to do so.
  4. After the first 14 days, employers must compensate employees in an amount that is no less than two-thirds of the employee’s regular rate of pay. These pay requirements apply to only the COVID-19-related leave reasons listed above.
  5. Under the bill, certain employers are allowed the family leave credit for each qualified employee. The family leave credit is limited to $200 per day and maxes out at a total of $10,000 per qualified employee. Employers that are not already receiving a credit for paid family and medical leave under IRC § 45S are eligible for the family leave credit.  
  6. If the bill is passed, the provisions will go into effect 15 days after the date of enactment and expire on December 31, 2020.

Paid Sick Leave

  1. The bill requires employers with fewer than 500 employees to provide employees with 2 weeks of paid sick leave for specific circumstances related to COVID-19. Such employers will also be required to post a notice informing their employees of their rights to leave.
  2. Under the bill, if an employee is on leave to quarantine, or to seek a diagnosis or preventative measure, the employee is entitled to 2 weeks of paid sick leave that equals their regular rate. For example, full-time employees are entitled to 2 weeks (80) hours, while part-time employees are entitled to the usual number of hours that they work in a typical 2 week period.
  3. If an employee is on leave to care for a family member or a child whose school or care provider is closed or otherwise unavailable, the employee is entitled to two-thirds of the employee’s regular rate, as described above.
  4. Under the bill, certain employers are allowed the sick leave credit for each qualified employee. The sick leave credit is limited to the employee’s wages up to $511 per day if the employee’s sick leave is to care for themself. If the employee’s sick leave is to care for another, as mentioned above, the sick leave credit is limited to the employee’s wages up to $200 per day. The sick leave credit is also limited to the number of days in excess of 10 days over the aggregate number of days taken into account for all preceding calendar quarters.
  5. Employers that are not already receiving a credit for paid family and medical leave under IRC § 45S are eligible for the family leave credit.
  6. As currently drafted, the bill expressly provides that it does not preempt existing state or local paid sick leave entitlements.
  7. If the bill is passed, the provisions will go into effect 15 days after the date of enactment and expire on December 31, 2020.

Unemployment Insurance

The bill provides $1 billion in emergency unemployment insurance (UI) relief to the states: $500 million for costs associated with increased administration of each state’s UI program and $500 million held in reserve to assist states with a 10 percent increase in unemployment. Besides the necessary increase in unemployment, in order to receive a portion of this grant money, states must temporarily relax certain UI eligibility requirements, such as waiting periods and work search requirements.

Concerns for Employers

As mentioned above, the Families First Bill places the burden on employers. And again, while we all want to do our part, small businesses must be able to survive. As drafted, the leave provisions apply only to employers with fewer than 500 employees. According to commentators in the know, it is unclear why the bill was drafted this way or whether additional legislation may be forthcoming for employers with more than 500 employees. And, it is unclear what relief will be provided to small businesses, in terms of tax credits for making payments under the Families First Bill, and loans or grants through forms of disaster relief. More to come on this.

Important: It is important to remember that this was passed by the House only. It still has to make it through the Senate and be signed by the president. We expect changes. Once we see those changes, we will provide additional guidance.

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March 17, 2020

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