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March 23, 2020

The Families First Coronavirus Response Act, and Impact on Employers - Part 3

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Giulia-DiCenzo
By: Giulia Di Cenzo

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 Families First Coronavirus Response Act (the “Act”) which had only been passed by the House at that time. Since then, the Act has progressed into law, and we want to provide additional details on how the Act may impact businesses. 

Background

On March 14, 2020, the House passed a draft of the Act, but then made certain technical corrections to it that were passed on March 16, 2020. Then on March 18, 2020, the Senate passed the March 16, 2020 version of the Act, and the President signed it into law a few hours later. The Act provides paid leave benefits to employees, tax credits for employers and self-employed taxpayers, and FICA tax relief for employers.

Paid Family Medical Leave

  1. The Act 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. This FMLA amendment expires on December 31, 2020.
  2. Among other uses, qualifying employees may use the family medical 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. Employers are not required to compensate employees during the first ten (10) days of the family medical leave period (the “unpaid period”). But after the unpaid period, employers must compensate employees throughout the remaining family medical leave period. It is important to note that employers may still have to compensate employees during the unpaid period. For example, employees may use their accrued personal or sick leave to receive compensation during the unpaid period.
  4. After the unpaid period, employers must compensate employees in an amount that is no less than two-thirds of the employee’s regular rate of pay. This pay requirement only applies to the COVID-19 related family medical leave reasons listed in paragraph two, above.
  5. Employers are required to restore the employee’s position after the employee returns from family medical leave. But, employers with fewer than 25 employees may be exempt from this requirement if specific conditions are present for them. One such condition is the position held by the employee when the family medical leave commenced no longer exists due to economic conditions or other changes.
  6. The Act provides employers with tax credits for the family medical leave payments made under the Act (the “Act’s family medical tax credit”). The Act’s family medical tax credit may provide a favorable tax-related outcome for employers. For reference, a tax credit directly reduces, dollar-for-dollar, the amount of tax owed.
  7. The Act’s family medical tax credit is equal to 100% of the employer’s qualified family medical leave payments to employees per calendar quarter. But, employers that are already receiving a credit for paid family and medical leave under IRC § 45S are ineligible to also receive the Act’s family medical tax credit for the family medical leave payments made under the Act.
  8. The Act’s family medical tax credit is limited to $200 per day, per qualified employee, and maxes out at a total of $10,000 per year, per qualified employee.
  9. Employers may be entitled to an increased tax credit if the employer concurrently provides and maintains a group health plan.
  10. The Act will go into effect 15 days after the date of enactment and expire on December 31, 2020. Thus, the Act will go into effect on or after April 2, 2020.

Paid Sick Leave

  1. The Act requires employers with fewer than 500 employees to provide employees with two weeks of paid sick leave for COVID-19 related circumstances, such as an employee is required to quarantine himself, or to seek a diagnosis or preventative measure.
  2. Employers must compensate employees on sick leave at the employees’ regular rate of pay. For example, full-time employees are entitled to two weeks of pay (or a maximum of 80 hours of pay), while part-time employees are entitled compensation equaling the usual number of hours that they work in a typical two week period.
  3. If an employee is on sick 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 in paragraph two, above.
  4. The Act provides employers with tax credits for the sick leave payments made under the Act (the “Act’s sick leave tax credit”). The Act’s sick leave tax credit may provide a favorable tax-related outcome for employers. Again, for reference, a tax credit directly reduces the amount of tax owed, while a tax deduction reduces how much income is subject to taxes.
  5. The Act’s sick leave tax credit is equal to 100% of the qualified sick leave payments to employees per calendar quarter. But, employers that are already receiving a credit for paid sick leave under IRC § 45S are ineligible to also receive the Act’s sick leave tax credit for the sick leave payments made under the Act.
  6. If an employee’s sick leave is to care for himself, then the Act’s sick leave tax credit is limited to that employee’s wages per day, up to $511 per day.
  7. If the employee’s sick leave is to care for another, as mentioned in paragraph 3, the Act’s sick leave tax credit is limited to the employee’s wages per day, up to $200 per day.
  8. The sick leave tax 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.
  9. Employers may be entitled to an increased sick leave tax credit if the employer concurrently provides and maintains a group health plan.
  1. The Act will go into effect 15 days after the date of enactment and expire on December 31, 2020. Thus, the Act will go into effect on or after April 2, 2020.

Unemployment Insurance

As mentioned before, the Act 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 Act 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 Act 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 facilitating this Act or other COVID-19 related costs. More to come on this.

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« The Families First Coronavirus Response Act, and Impact on Employers - Part 2 | Main | Financial Assistance for Individuals and Families Provided by the CARES Act »

March 23, 2020

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