The Families First Coronavirus Response Act (FFCRA) signed on March 18, 2020, made unprecedented expansions to paid sick and family (childcare) leave provisions in light of the challenges for the American workforce due to COVID-19. The expansions to paid sick and family leave cover employers with up to 500 employees, and tax credits are available for up to 100% of qualifying wages paid. Eligible employers are granted a grace period by the DOL to come into compliance with the Act as long as employers act reasonably and in good faith during the grace period.
For employers, it’s important to understand the parameters of the Act, obligations to employees, how to obtain the tax credits due to come into compliance and find relief from the provisions of the FFCRA. Employers should check the DOL website for additional guidance and required notices.
How employees qualify for paid sick or family leave
For sick leave, an employee must:
- Be quarantined or subject to isolation order by government mandate or health care provider directive
- Be experiencing symptoms of COVID-19 and seeking a medical diagnosis
- Be caring for a quarantined or ill individual
- Have experienced school or childcare closure as a result of COVID-19
For family leave, an employee must be experiencing a school or childcare closure as a result of COVID-19.
What the paid sick and family leave entails
Employees with qualifying circumstances are eligible for 2 weeks, up to 80 hours, of paid sick leave at 100% their rate of pay. This caps out at $511 per day and $5,110 total. Part-time employees are also eligible to receive pay at the rate of their average of two weeks.
For those who are caring for a quarantined or ill individual or children due to school or childcare closure, sick leave pay is to be provided at two-thirds the rate of pay for up to $200 per day and $2,000 total.
Paid sick leave is in addition to (not in place of) any paid leave provided by the employer.
Employees who are unable to work due to childcare or school closure are eligible for paid family leave of up to 10 weeks at two-thirds their rate of pay (up to $200 per day, $10,000 total). An initial 10-day leave period must be taken, which may be unpaid.
Employers with employees under certain multiemployer bargaining agreements may meet these obligations by making contributions to a multiemployer fund, plan, or program based on the entitled paid leave. The fund, plan, or program must provide employees with sick leave and childcare leave benefits.
How the cost of the paid sick or family leave is covered
For employers required to provide these paid sick and family leave benefits, refundable tax credits are available to offset the costs. Credits are available for the period beginning no later than April 2, 2020 (earlier if determined by the Treasury) until December 31, 2020.
How the sick leave and childcare leave credits work:
- The refundable credit of 100% of qualified sick leave and childcare leave wages are applied against the employer portion of Social Security taxes for each calendar quarter.
- The total number of days cannot exceed 10 in each calendar quarter and is reduced by the number of days taken in preceding quarters.
- Maintenance of the employee’s health insurance coverage during the period may increase the amount of the credit.
- Sick leave credit may not exceed the tax imposed for the quarter on all employee wages, but credit is refundable for amounts exceeding such tax liability.
- Employer gross income is increased by the amount of the credit to offset the deduction for compensation expense.
Exemptions are available for employers with less than 50 employees who request it if a school or childcare closure leave would jeopardize the viability of the business. Emergency guidance and rulemaking for this exemption is still expected from the Department of Labor.
Expedited relief is coming for employers
Expedited relief has been ordered by the Treasury, IRS, and DOL to enable small and midsize employers to take advantage of these refundable credits immediately. Eligible employers paying qualified sick and childcare leave would be permitted to retain the amount of taxes equal to the qualifying leave rather than deposit them. Those taxes include federal income taxes, the employee share of Social Security and Medicare taxes, and employer share of Social Security and Medicare taxes for all employees. A request for an accelerated refund is available when the payroll taxes are not sufficient for covering the paid sick and childcare leave wages paid by the employer.
Examples of expedited relief:
- Employer pays $5,000 in sick leave and has a payroll tax bill of $8,000. $5,000 of the payroll taxes can be used to cover the sick leave, with the remaining $3,000 deposited to cover obligations.
- Employer pays $10,000 in sick leave and has a payroll tax bill of $8,000. The $8,000 in payroll taxes can be used to cover a portion of the sick leave, and the additional $2,000 can be covered in an application for accelerated credit.
Employers should not feel alone in dealing with these changes. The Treasury is responsible for:
- Guidance to prevent the avoidance of the credit purpose
- Guidance to minimize the compliance and record-keeping burden on the employer
- Providing waiver of penalties for failure to deposit taxes in anticipation of the credit
- Informing employers on how to capture credit benefits
Currently, this guidance has not been published. We will be monitoring this and provide more guidance as it becomes available.
For assistance with understanding your obligations and calculating these credits, contact LB Carlson.