On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act, which includes the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act (collectively, the “Act”). The Act brings into effect sweeping changes for certain small businesses which have employees who are affected by the COVID-19 outbreak. The Act’s provisions are generally effective from April 2, 2020, through December 31, 2020.
Emergency Family and Medical Leave Expansion Act
Under the Act, the Family and Medical Leave Act of 1993 (“FMLA”) has been amended to include FMLA leave for a “qualifying need” related to a COVID-19 emergency declared by a Federal, State, or local authority. For these purposes, a qualifying need means the employee is unable to work (or telework) due to the need for leave to care for a child under the age of 18 if the school or place of care has been closed, or the child care provider of the child is unavailable, due to a COVID-19 emergency declared by a Federal, State, or local authority.
Eligible employees who qualify are those who have been employed for at least 30 calendar days by the employer, provided the employer has less than 500 employees. However, the Secretary of Labor has the authority to issue regulations for “good cause” to exclude certain employees in the medical field. In addition, the Secretary of Labor has the authority to exempt certain small businesses with fewer than 50 employees from the new FMLA requirements if the imposition of the new requirements would jeopardize the viability of the business as a going concern (“Small Business Exception”).
Employers may require an employee who takes FMLA leave to take unpaid leave for the first 10 days. But the employee may elect to substitute any accrued vacation leave, personal leave, or medical or sick leave for unpaid leave. After the first 10 days, the employer must provide paid leave to the employee based on: (1) an amount not less than two-thirds of the employee’s regular rate of pay (as determined under 29 U.S.C. § 207(e)), and (2) the number of hours the employee would otherwise be normally scheduled to work, unless the employee has a varying schedule of hours, which is computed differently. The employer is not required to pay leave in excess of $200 per day and $10,000 in the aggregate.
Emergency Paid Sick Leave Act
The Act also mandates employer paid sick time to the extent an employee is unable to work (or telework) due to the following:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
- The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
- The employee is caring for an individual who is subject to an order as described in (1) or has been advised as described in (2);
- The employee is caring for a child if the school or place of care has been closed, or the child care provider of such child is unavailable, due to COVID-19 precautions;
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
Full-time employees are entitled to paid sick time for up to 80 hours of work and part-time employees are entitled to paid sick time equal to the number of hours in which the employee typically works, on average, over a 2-week pay period. For (1) through (3) above, the employee’s paid sick time cannot exceed $511 per day and $5,110 in the aggregate. For (4) through (6) above, the employee’s paid sick time cannot exceed $200 per day and $2,000 in the aggregate.
If the employer fails to provide paid sick time under the Act, the employer may be liable for penalties with respect to each violation. In addition, the employer can be held liable for penalties if the employer discharges, disciplines, or in any other way discriminates against an employee who takes paid leave in accordance with the Act.
Employers are required to post a notice of the Act and its requirements in a conspicuous place on the employer’s premises. The Secretary of Labor will make publicly available a model notice.
Similar to above, the new paid sick time law generally applies to any employer who employs less than 500 employees. The new laws also provide the Secretary of Labor with authority to issue regulations for “good cause” to exclude certain employees in the medical profession and certain small businesses under the Small Business Exception.
Payroll Tax Credits
Because employers are required to pay FMLA leave and paid sick time where applicable, the Act provides payroll tax credits to employers. Employers can obtain the payroll tax credits through a credit on their quarterly employment tax returns (Forms 941). If the payroll tax credit exceeds the amount of payroll tax for the quarter, the excess is treated as an overpayment and will be refunded by the IRS to the employer.
The Act provides a similar payroll tax credit for self-employed individuals, provided the individual regularly carries on a trade or business and would have otherwise qualified for paid leave under the Act if the individual were an employee.
Generally, any amounts required to be paid under the Act are not considered wages for purposes of the self-employment tax.
On March 20, 2020, the Treasury Department, IRS, and Department of Labor issued a News Release, which indicated that they were working on providing additional guidance on the Act. In the News Release, they also stated:
- There would be a 30-day non-enforcement period for good-faith compliance efforts.
- The Department of Labor would provide emergency guidance and rulemaking to clearly articulate the standard for the Small Business Exception.
- If the employer lacks sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request with the IRS for an accelerated payment. The IRS expects to process these requests in two weeks or less, and the details of the new, expedited procedure will be announced this week.
An eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all of its employees. The employer may use up to $5,000 of the $8,000 in payroll taxes it was going to deposit to make the qualified leave payments. The employer is required to deposit the remaining $3,000 in its next regular deposit date.
An eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in payroll taxes. The employer may use the entire $8,000 in payroll taxes in order to make the qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
Need assistance in managing the business planning processes? Freeman Law advises clients with corporate and other entity formations and reorganizations. Restructuring entities—through conversions, mergers, and liquidations—can involve particularly complex tax and regulatory considerations. Freeman Law provides experienced tax and business counsel, helping our clients achieve their organizational goals in a tax-efficient manner. Schedule a consultation or call (214) 984-3000 to discuss your corporate structuring or business and tax planning concerns.